Oil drops nearly 2% as China slowdown bites

Marco Green
January 22, 2019

There is a high correlation between economic growth and oil demand growth.

Oil has advanced 15 percent in London this year on expectations that any surplus will be kept in check as the Organization of Petroleum Exporting Countries and its allies curtail production.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower on Tuesday in reaction to concerns about slowing global economic growth and lower demand.

In its latest market report, OPEC stated: "In 2019, world oil demand is forecast to rise by 1.29 mb/d, also in line with last month's projections".

Brent, used to price global oil, fell 0.80 percent to trade at United States dollars 62.24 a barrel.

WTI crude for February, which expires Tuesday, was at $53.15 a barrel on the New York Mercantile Exchange, down 65 cents from the settlement on January 18. He made the remarks on the same day that China reported its quarterly economic growth fell to 6.4 percent, the weakest since 2009. On Tuesday, official data from South Korea showed the country's growth slowed to a six-year low of 2.7 percent in 2018.

"Oil prices are slightly down from yesterday along with concerns of Chinese growth slowdown, which could affect oil consumption", said Michael Poulsen, an analyst at Global Risk Management Ltd.

"The global outlook remains murky, despite emerging positives from a dovish Fed (now boosting USA mortgage applications), faster China easing (China credit growth stabilizing) and a more durable U.S".

"It remains quite likely that the trade spat with the US has played a part in this latest slowdown", CMC Markets chief market analyst Michael Hewson said.

"Brent can remain above $60 per barrel on OPEC+ compliance, expiry of Iran waivers and slower US output growth", J.P. Morgan said.

"The oil market will become gradually rebalanced during the course of the year". In the USA, sales of previously owned homes declined to the slowest pace in more than three years, according to data released Tuesday. Based on the price action the last two weeks, it seems the only way to stop the selling will be additional positive comments about U.S.

An oil well pump jack is seen at an oil field supply yard near Denver, Colorado, U.S., February 2, 2015.

With the rig count stalling, last year's growth rate is unlikely to be repeated in 2019, although most analysts expect annual production to average well over 12 million bpd, making the United States the world's biggest oil producer ahead of Russian Federation and Saudi Arabia.

Other reports by Click Lancashire

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