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Crude oil tilted lower for the second straight day on Tuesday, as the market weighed the Chinese government’s 5% economic growth projection for the year and its implications for oil demand.
While China’s target is similar to last year’s goal and in line with analyst expectations, the lack of big-ticket stimulus to prop up a struggling economy underwhelmed investors.
“The growth target is OK, but the missing part is how they want to achieve that – what sort of stimulus is unclear for now,” UBS analyst Giovanni Staunovo said, according to Reuters.
China’s growth target is seen as “ambitious,” Swissquote Bank’s Ipek Ozkardeskaya said, noting that U.S. crude failed to push past $80/bbl even after China’s actions.
Price Futures analyst Phil Flynn is much more optimistic, anticipating oil demand in the U.S. and the rest of the world will exceed expectations, while the market likely will be undersupplied in this year’s second half.
“More and more the futures spread seems to be suggesting the same thing,” Flynn said, referring to backwardation in the futures contracts.
Front-month Nymex crude (CL1:COM) for April delivery closed -0.7% to $78.15/bbl, and front-month May Brent crude (CO1:COM) settled -0.9% to $82.04/bbl.
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The energy sector (NYSEARCA:XLE) ended +0.7%, led by Baker Hughes (BKR), which climbed 2.5%.
Crude markets have largely shrugged off the widely expected OPEC+ decision to extend voluntary production cuts at least through Q2, and tighter supply already had been priced into contracts.
The extension will not stop an oil surplus in this year’s H2 as prices remain stimulating to the ongoing growth in U.S. shale oil, Macquarie analysts say, noting non-OPEC supply response has greatly exceeded market expectations in the past two years.