Opec cuts 2024 and 2025 forecast, but says China stimulus plan could boost oil demand

Country has announced several stimulus measures since last year to address its slowing economy

The Daxing district in Beijing. China plans to 'significantly increase' government debt issuance to provide subsidies for people with low incomes. EPA

Opec has lowered its forecast for global oil demand growth in 2024 and 2025 for the third consecutive month, but is optimistic that China’s stimulus plan to revive its economy, the second-largest in the world, will support crude consumption.

In its oil market report released on Monday, the group lowered its oil demand growth forecast for this year by 106,000 barrels per day to 1.9 million bpd, citing slightly reduced expectations for crude consumption in several regions. Opec also revised its forecast for world oil demand growth for next year down by 102,000 bpd to 1.6 million bpd.

The latest forecast cut comes as China's crude consumption shows signs of decline, which analysts attribute to both a slowing economy and a long-term shift towards the use of electric vehicles. The country has since last year announced several stimulus measures to address slowing manufacturing, a property market downturn and rising unemployment.

“These measures are expected to support the construction sector and oil demand, particularly in the fourth quarter,” Opec said.

Last month, China’s central bank unveiled its largest economic stimulus package since the Covid-19 pandemic, including a reduction in its key short-term interest rate, a lowering of mortgage rates for existing housing loans and a one trillion yuan ($141.16 billion) liquidity injection.

“In 2025, the positive impact of government fiscal stimulus introduced in September 2024 is expected to take hold,” the group said.

However, oil prices fell on Monday as traders were concerned about the lack of clarity regarding China’s stimulus plan. Brent, the benchmark for two thirds of the world's oil, was trading 2.26 per cent lower at $77.25 at 3pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 2.38 per cent at $73.76 a barrel.

China will "significantly increase" government debt issuance to provide subsidies for people with low incomes, bolster the property market, and recapitalise state banks, Finance Minister Lan Foan announced at a news conference on Saturday.

He also mentioned that additional "counter-cyclical measures" will be implemented this year, though he did not specify the size of the upcoming fiscal stimulus.

"China's stimulus talk left investors wanting more. Despite vague promises, the yuan's decline and falling oil prices show scepticism about Beijing's growth plans,” said Mukesh Sahdev, global head of commodity markets, oil, Rystad Energy.

The central bank's liquidity injection seeks to reassure investors about China’s 5 per cent GDP growth target for this year, but support for oil prices may be short-lived without clearer policy measures during the upcoming National People’s Congress review, Mr Sahdev said in a research note on Monday.

NPC, which is responsible for enacting laws and approving the national budget, is expected convene for its 12th session in late October.

Vandana Hari, the chief executive of Vanda Insights, said that Monday’s oil price decline is due to “an erosion of the geopolitical risk premium.”

“The threatened Israeli strike on Iran hasn't materialised for almost a fortnight now and the longer it takes, the more the market will be inclined to start shedding the risk premium in crude,” she said.

Brent has gained roughly 9 per cent since Iran’s ballistic missile attack on Israel on October 1.

Oil traders are closely watching Israel's response, with some reports indicating that Israel could potentially target Iran’s oil and nuclear assets.

On Friday, the US expanded sanctions on Iran’s petroleum and petrochemical sectors in response to Iran’s second direct attack on Israel this year.

The move aims to intensify financial pressure on Iran, limiting the regime’s ability to earn “critical energy revenues to undermine stability in the region and attack US partners and allies”, the US Treasury Department said in a statement.