A Chinese stimulus package announced by the government of Xi Jinping highlights the administration’s concern surrounding recent slow growth and weak demand, according to analysts from TPH & Co. and Rystad Energy.

In China’s biggest stimulus package since the COVID-19 pandemic, the government is attempting to reverse the country’s recent deflationary trend and turn back toward a 5% GDP growth target, TPH & Co. analysts said on Sept. 24.

China’s central bank announced several reduced interest rates, including a 50 basis points cut to its reserve requirement ratio and a 20 basis points cut to seven-day reverse repo rate—the interest rate at which the central bank borrows money from commercial banks. The stimulus package also reduces the minimum down payment requirement for housing purchases, among other measures.

Oil demand for the past three months has been weak, especially in China, Rystad Global Market Analysis Director Claudio Galimberti said Sept. 24 in a research report. The package should provide some respite for oil prices, he said.

Brent oil prices surpassed $75/bbl on Sept. 24, supported by the promising economic news from China, the Fed’s rate cut last week as well and escalating geopolitical tensions in Gaza.

But on Sept. 25, oil prices fell more than 1% as investors reassessed whether China's latest stimulus plans would be enough to boost its economy and spur fuel demand in the world's largest crude importer, Reuters reported.

“The stimulus has had an immediate impact on oil prices, but the long-term impact on oil demand could be key,” Galimberti said. “The package could reignite fuel demand in the world’s largest oil importer, especially after a steep drop in refined oil imports this year driven by its manufacturing sector struggles.”

Oil prices are slowly inching back to fair values consistent with supply and demand fundamentals, Galimberti said.

“The Chinese government’s announcement of its largest stimulus package since the pandemic, combined with the sudden rise of geopolitical tension in the Middle East and the threat of another hurricane in the Gulf Coast, has dealt a blow to the bearish sentiment that dominated the oil markets in the past three weeks,” Galimberti said.

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