Oil prices end lower as optimism over China stimulus plan fades

By Myra P. Saefong and William Watts

EIA reports a second straight weekly fall in U.S. crude inventories

Oil futures finished lower Wednesday, pulling back from strong gains a day earlier when China's announcement of an aggressive monetary stimulus plan sparked a broad commodities rally.

A second straight weekly decline in U.S. crude inventories, and storm-related disruptions to energy production in the Gulf of Mexico failed to provide support for prices.

Price moves

West Texas Intermediate crude CL00 for November delivery CL.1 CLX24 fell $1.87, or 2.6%, to settle at $69.69 a barrel on the New York Mercantile Exchange, the lowest since Sept. 13, according to Dow Jones Market Data.November Brent crude BRNX24, the global benchmark, lost $1.71, or 2.3%, at $73.46 a barrel on ICE Futures Europe. December Brent BRN00 BRNZ24, the more actively traded contract, declined $1.57, or 2.1%, to $72.90 a barrel.October gasoline RBV24 fell 1.5% to $2 a gallon, while October heating oil HOV24 shed 0.9% to $2.16 a gallon.Natural gas for October delivery NGV24 climbed 3.4% to settle at $2.64 per million British thermal units, the highest since June. The contract expires at the end of Thursday's session.

Market drivers

The rally on Tuesday, spurred by the announcement of Chinese stimulus measures, has fizzled, the Kansas City energy team at StoneX, led by Alex Hodes, wrote in its Wednesday newsletter.

"Expectations are that this round of stimulus won't be sufficient to buoy the sluggish economy," they said. China is the world's largest crude importer. "Still, there's optimism that China may introduce further stimulus in the coming months," the StoneX team said.

Read: China stimulus plans spark a commodities rally, but a global soft landing still isn't a sure bet

The People's Bank of China on Tuesday announced its most aggressive stimulus program since the COVID-19 pandemic.

The China measures "felt more like panic" than the Fed's 50 basis point rate cut last week, said Stephen Innes, managing partner at SPI Asset Management, in a note.

"It's like they hit the 'shock & awe' button, which only deepens the worry about China's slow-motion slowdown. Deflation, deleveraging, and sluggish growth already have investors on edge, but when you toss in surprise measures like this, it starts feeling more like a scramble than a solution," he wrote.

Looking ahead, oil may be influenced by incoming U.S. economic data, which could impact bets for interest-rate cuts by the Federal Reserve for the final quarter of 2024, said Lukman Otunuga, manager of market analysis at FXTM.

Traders, meanwhile, remained on alert for any escalation between Israel and Iran-backed Hezbollah. The main worry would be a direct confrontation between Israel and Iran capable of threatening crude flows from the region.

Meanwhile, the storm system in the Gulf known as Helene became a hurricane Wednesday, raising concerns about oil and gas production in the Gulf of Mexico. Earlier Wednesday, George Khoury, global head of education and research at CFI, said in emailed comments that the storm had shifted direction and appeared likely to cause less disruption than previously feared.

Still, as of Wednesday, the Interior Department's Bureau of Safety and Environmental Enforcement reported that 29.18% of the region's oil production and 16.85% of the area's natural-gas production were shut in because of the storm.

Supply data

The Energy Information Administration reported that U.S. commercial crude inventories fell for a second week in row, by 4.5 million barrels for the week ended Sept. 20. The declines followed energy output disruptions caused by Francine, the storm system that made landfall in Louisiana as a Category 2 hurricane on Sept. 11.

Analysts at Macquarie had forecast a larger crude supply drop of 8.4 million barrels for last week. Late Tuesday, the American Petroleum Institute reported a weekly crude-inventory fall of 4.4 million barrels, according to a source citing the data.

The EIA report also showed weekly supply declines of 1.5 million barrels for gasoline and 2.2 million barrels for distillates. Analysts at Macquarie expected supply decreases of 1.8 million barrels for gasoline and 2.5 million barrels for distillates.

U.S. oil production was unchanged at 13.2 million barrels per day in the latest week, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 100,000 barrels to 22.8 million barrels.

Demand for gasoline, meanwhile, climbed, with total motor gasoline supplied, a proxy for demand, at 9.205 million barrels per day in the latest week, from 8.776 million bpd from a week earlier.

-Myra P. Saefong -William Watts

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09-25-24 1509ET

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