Oil Prices Drop Over $1 Amid Concerns of Deflation in China

Oil prices fell more than $1 per barrel Monday, October 14, slipping over 1.5% in early trading, as weak Chinese inflation data and uncertainty over Beijing's new economic stimulus measures rose concerns over demand.

Following on Monday, Oil prices slumped with Brent crude futures shedding $1.26, or 1.59%, reaching $77.78 a barrel by 0020 GMT, while U.S. West Texas Intermediate crude futures lost $1.20, or 1.59%, reaching $74.36 a barrel.

Negative economic indicators emanating from China overwhelmed market concerns over oil production disruptions after Israel's 'reprisal action' following Iran's missile attack on October 1. However, the U.S. has called on Israel not to attack at Iran's energy sector.

Data released on Saturday said deflationary pressures are intensifying in the Chinese economy. The consumer price index registered modest growth of 0.4%, less than forecasts as the producer price index fell by 2.8% from last year, which is the sharpest decline in six months, according to the National Bureau of Statistics in China.

IG market analyst Tony Sycamore said that the modest result of Saturday's briefing of China's Ministry of Finance, factoring in the weak domestic demand behind deflationary pressure, shows no significant fiscal measures will be enough to overcome a turning point other than reviving consumer confidence.

Pinpoint Asset Management’s chief economist said that China's chronic deflation could not be averted by weak internalized demand. Fiscal policy is required to be changed, according to him. It said the Chinese government will increase debt issuance but did not unveil further details on the stimulus package. It disappointed the traders.

Oil benchmarks had risen 1% the previous week following the weighing of investors on supply risk caused by the Middle East conflicts and from Hurricane Milton's impact in Florida on fuel demand.

It targeted the so-called "ghost fleet" used by Iran for transporting illicit oil all around the globe in response to last week's Oct. 1 attack on the US.

In the U.S., energy firms increased the number of oil and natural gas rigs for the first time in four weeks, according to a report by Baker Hughes. The number of rigs rose to 586 as of October 11. Weak demand was still influencing the broader outlook despite the fact that evacuations ahead of Hurricane Milton - which later became Tropical Storm Milton, the least intense hurricane ever identified over the Atlantic - temporarily boosted gasoline consumption.

BP also reported third-quarter profit sagged $600 million as weaker refining margins amidst slowing global oil consumption.