Oil prices surged by about 3 per cent on Tuesday after China announced major stimulus measures to revive its economy and as escalating tensions in the Middle East stoked supply concerns.
Brent, the benchmark for two thirds of the world's oil, was trading 2.5 per cent higher at $75.77 a barrel at 2.21pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 2.7 per cent at $72.27 a barrel.
China, the world's second-largest economy and top crude importer, has unveiled its largest economic stimulus package since the pandemic, which includes a reduction in its key short-term interest rate and a lowering of mortgage rates for existing housing loans.
The measures aim to combat a slowdown in the country's economy, which is facing deflation, weak consumer spending, a slumping property market and a manufacturing downturn.
The People’s Bank of China will lower its short-term seven-day reverse repo rate, the central bank’s main policy rate, to 1.5 per cent from 1.7 per cent, its governor Pan Gongsheng said in a media briefing.
The central bank also plans to reduce the amount of reserves that lenders must hold, known as the reserve requirement ratio, by 0.5 percentage points, Mr Pan said.
“Good news is that investors reacted positively to the stimulus measures … bad news is that the rebound in Chinese assets will likely remain fragile until the stimulus measures lead to concrete amelioration of the economic data,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Oil prices have come under pressure over the past few months on concerns over weak demand in China. Brent has lost about 17 per cent of its value since reaching a high of $91 a barrel in April.
Earlier this month, the International Energy Agency cut its 2024 oil demand growth forecast, citing a “rapidly slowing” Chinese economy.
The Paris-based agency now expects global oil demand to grow by 900,000 barrels a day this year, 70,000 bpd less than its previous estimate.
China's second-quarter gross domestic product growth slowed to 4.7 per cent on an annual basis, from 5.3 per cent in the first quarter. It consumed 13.9 million bpd of crude in August, a slight increase over the previous month but still down by 6 per cent year-on-year on an apparent demand basis, according to the National Bureau of Statistics.
In the Middle East, Israel's military conducted air strikes on Hezbollah sites in Lebanon on Monday. Lebanese authorities said the attacks resulted in the deaths of at least 492 people and forced tens of thousands to flee for safety, marking the deadliest day in the country in decades.
Nations across the Middle East have condemned Israel's attacks on Lebanon, with the UAE releasing a statement “rejecting violence, escalation and reckless actions”.
