Oil starts the week in fall on Bearish economic data from China

Oil prices were declining at the beginning of the week following the latest economic news from China, the second biggest economy of the world, which was interpreted as bearish for oil demand.

That latest news was inflation data for September, which showed consumer prices had only gone up modestly, by 0.4%, falling short of economist expectations of 0.6% as shared with Reuters. The September consumer price figure was also the slowest price rise in three months, Reuters noted in its report.

Lower consumer prices are normally bullish for oil prices because the lower the prices, the stronger the consumption but in this case the dominant interpretation appears to be focusing on weaker prices as reflection of weaker demand that will only weaken further as inflation slows.

“China faces persistent deflationary pressure due to weak domestic demand. The change of fiscal policy stance as indicated by the press conference yesterday (Saturday) would help to deal with such problems,” the chief economist of Hong Kong-based Pinpoint Asset Management told Reuters.

On Saturday, the Chinese government announced it would be injecting further stimulus into the economy, which should have been positive for oil prices. However, Beijing did not elaborate on the size of the stimulus package, which would be in the form of “significantly increased” debt buying from local governments and subsidies to low-income households. Apparently, the only thing traders wanted to hear from that update was exactly how much the Chinese government would spend on these additional stimulus measures.

As a result, oil traders forgot about the Middle East temporarily and focused on the world’s largest oil importer yet again, betting that whatever stimulus it offers, it would not be enough to prop up global stock and commodity markets.

That’s despite reports from Friday that the U.S. will expand its sanctions against Iran, targeting its so-called ghost fleet of oil tankers.

“These measures will help further deny Iran financial resources used to support its missile programs and provide support for terrorist groups that threaten the United States, its allies, and partners,” National Security Adviser Jake Sullivan said, as quoted by Reuters.