Analysis Energy
Oil price rises due to Chinese stimulus package
The oil price has taken a clear step up this week. Especially new measures to stimulate the Chinese economy have caused the increase. In addition, a favorable American inflation figure gives the market a push in the back.
On Thursday, December 26, oil was still traded at $73.26 per barrel. A week later, on Thursday, January 2, the oil price had risen to $75.93. The oil price has since been slightly corrected downwards to $75.70 per barrel. This has brought the oil price to its highest level since mid-October.
With the transition to the new year, the oil price received support after it was announced that China is working on a new strategy to achieve an economic growth of 5% by 2025. The country plans to issue significantly more long-term government bonds this year, Reuters reported. The money will be used to stimulate domestic consumption.
The plan includes setting up a trade-in program for cars and electronic devices to promote domestic consumption of these goods. Within such a program, consumers can trade in old products to purchase new products at a discount. Additionally, the plan is to introduce new subsidies on digital products. Chinese citizens can partially purchase phones, tablets, and smartwatches at the state's expense within the new program. Market expectations are that the impact of the measures will increase global oil demand.
American inventories decline
Also, the oil price is buoyed by the American economic situation. Especially a favorable inflation figure provided support to the oil price. In November, inflation in the United States stood at 2.8%, lower than expected. This brings optimism regarding the American economy. Initially, there was a slight hope that the interest rate would be lowered sooner than expected. However, this expectation was quickly refuted, causing the price to slightly correct on Friday, January 3.
Nevertheless, the market remains cautious of oversupply. Particularly in the United States, production is increasing significantly. In October, oil production in the country increased by 260,000 barrels per day to 13.46 million barrels per day, according to recent data from the U.S. Energy Information Administration (EIA). With a 2.3% increase, the previous record of 13.36 million barrels per day was surpassed. This led to a 16% drop in the oil price. Although demand also increased significantly, the new data creates the sentiment that overproduction still poses a threat.
Diesel price rises relatively modestly
Meanwhile, the diesel price is also on the rise. On Friday, December 27, 100 liters of diesel were traded for €130.17. By Thursday, December 31, the price had risen to €131.96. On Friday, January 3, the price of diesel had slightly dropped again to €131.77 per 100 liters.
Matthijs Bremer
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