Oil ends higher after back-to-back losses as China announces stimulus measures

By Myra P. Saefong and William Watts

Middle East tensions, hurricane threat also provide lift to crude

Oil futures on Tuesday posted their first gain in three sessions after China announced a range of stimulus measures aimed at boosting the economy of the world's largest crude importer.

Continued Middle East tensions and the threat of another hurricane hitting the U.S. Gulf Coast were also supportive, analysts said.

Price moves

West Texas Intermediate crude CL00 for November delivery CL.1 CLX24 rose $1.19, or 1.7%, to settle at $71.56 a barrel on the New York Mercantile Exchange.November Brent crude BRNX24, the global benchmark, added $1.27, or 1.7%, to end at $75.17 a barrel on ICE Futures Europe. December Brent BRN00 BRNZ24, the more actively traded contract, rose $1.26, or 1.7%, to $74.47 a barrel.October gasoline RBV24 tacked on 2% to $2.03 a gallon, while October heating oil HOV24 climbed nearly 1.7% to $2.18 a gallon.Natural gas for October delivery NGV24 settled at $2.55 per million British thermal units, down 2.4%.

Market drivers

The Chinese government's announcement of its largest stimulus package since the pandemic, combined with the sudden rise of geopolitical tensions in the Middle East, and the threat of another hurricane in the Gulf Coast, "dealt a blow to the bearish sentiment that dominated the oil markets in the past three weeks," Claudio Galimberti, global market analysis director at Rystad Energy, wrote in a market update Tuesday.

"The stimulus is good news for oil demand, which has been weaker than expected, specifically in China, for the past three months," he said.

People's Bank of China Gov. Pan Gongsheng said in a rare public briefing that the short-term interest rate would be cut, the amount of capital banks were required to hold in reserve would be reduced, and there would be a batch of support for the housing sector and the struggling equity market as the government moved to lift economic growth toward its 5% annual target.

Chinese equities saw their biggest rally in more than two years, while stocks and assets sensitive to Chinese demand posted strong rallies. As for crude, worries about China's lackluster economic growth have been a significant drag on the market in 2024.

"The effort is expected to reinvigorate Chinese consumer sentiment," the Kansas City energy team at StoneX, led by Alex Hodes, wrote in its Tuesday newsletter. "However, there is skepticism by many analysts that this may not boost internal demand enough to boost crude prices, but instead provide a stronger floor for oil."

Oil prices traded off the session's best levels after data from The Conference Board released Tuesday showed that U.S. consumer confidence fell in September to a three-month low. The index fell to 98.7 from a revised 105.6 in August.

Strikes on Lebanon by Israel on Monday killed more than 490 people, including more than 90 women and children, Lebanese authorities said. The Israeli military warned residents in southern and eastern Lebanon to evacuate ahead of a widening air campaign against Iran-backed Hezbollah.

"Though oil rebounded last week, we do not see the current price as accurately reflecting a wider Middle East war scenario. Many market participants have seemingly written off a threat to regional oil supplies," Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a note.

"While we are not forecasting a closure of the Strait of Hormuz, we do think that direct Iranian involvement would raise the prospect of a repeat of the 2019 scenario when the IRGC (Islamic Revolutionary Guard Corps) and allies targeted tankers and critical energy infrastructure in the region," she wrote.

Meanwhile, Tropical Storm Helene was forecast to become a hurricane on Wednesday as it approaches the Gulf Coast, according to the National Hurricane Center. The impending storm has already seen U.S. and Mexican facilities suspend operations, according to analysts at ING.

"The prospect of a new hurricane system developing in the Gulf of Mexico could bring a repeat of Hurricane Francine's impact earlier this month, which could at least temporarily disrupt offshore crude production," Robbie Fraser, associate director of global research and analytics at Schneider Electric, said in a daily note.

"Unlike natural gas, offshore crude production still has enough share of total output (15%) to meaningfully impact prices, though disruptions are usually short-lived," he said.

-Jamie Chisholm and the Associated Press contributed.

-Myra P. Saefong -William Watts

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09-24-24 1543ET

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