• Oil prices are declining due to eased U.S. supply disruption threats and China's disappointing stimulus plan.
• China's shift towards cleaner energy and economic slowdown have stagnated its oil consumption growth.
• U.S. oil prices eased as concerns about supply disruption from storm Rafael subsided.
• The global oil market's future is uncertain due to various influencing factors, including policy uncertainties under the incoming U.S. administration.

The global oil market is currently undergoing a significant shift, with oil prices extending declines due to a variety of factors. The threat of a supply disruption from a U.S. storm has eased, and China's stimulus plan has disappointed investors seeking fuel demand growth in the world's second-largest oil consumer.

Brent crude futures dropped 31 cents, or 0.4%, to $73.56 a barrel, while U.S. West Texas Intermediate crude futures were at $70 a barrel, down 38 cents, or 0.5%. Both benchmarks fell more than 2% last Friday.

China's stimulus package, announced at the National People's Congress (NPC) standing committee meeting, fell short of market expectations. The lack of direct fiscal stimulus implied that Chinese policymakers have left room for assessing the impact of the policies the next U.S. administration will introduce.

The market is now shifting focus to the Politburo meeting and Central Economic Work Conference in December, where more pro-consumption countercyclical measures are expected to be announced.

Oil consumption in China, the world's driver of global demand growth for years, has barely grown in 2024 as its economic growth has slowed. Gasoline use has declined with the rapid growth of electric vehicles, and liquefied natural gas has replaced diesel as a truck fuel.

China's Economic Slowdown and Its Impact on Oil Consumption

This shift in consumption patterns has significant implications for the global oil market. The rapid growth of electric vehicles and the replacement of diesel with liquefied natural gas as a truck fuel are indicative of a broader trend towards cleaner energy sources. This trend, coupled with China's economic slowdown, has led to a stagnation in oil consumption growth in the country.

In the U.S., more than a quarter of Gulf of Mexico oil and 16% of natural gas output remained offline due to storm Rafael. However, oil prices have eased as concerns about supply disruption subsided. Shell and Chevron have announced plans to redeploy personnel to their Gulf of Mexico platforms to resume operations.

The global economic outlook is clouded by uncertainty from policies under U.S. President-elect Donald Trump. Expectations that he could tighten sanctions on OPEC producers Iran and Venezuela and cut oil supply to global markets partly caused oil prices to gain more than 1% last week.

Historical Precedents and Future Implications

In the past, similar events have occurred where geopolitical tensions, economic policies, and natural disasters have significantly impacted oil prices.

For instance, the 1973 oil embargo led by Arab members of the Organization of Petroleum Exporting Countries (OPEC) against the U.S. for its support of Israel during the Yom Kippur War led to a quadrupling of oil prices. Similarly, the 1990 Gulf War saw a sharp increase in oil prices due to concerns about potential supply disruptions.

However, oil markets are also being supported by firm demand from U.S. refiners who are expected to run their plants at above 90% of their crude processing capacity on low inventories and improving demand for gasoline and diesel. This strong demand, coupled with the expectation of more pro-consumption measures to be announced in China, could potentially offset some of the downward pressure on oil prices.