Falling GDP, China’s Weakening Economy Drops Crude Oil Price By 2%

China’s weakening economy is driving fears of a global slowdown and now impacting oil markets. The price of crude oil fell 2.1% today.

New Data Shows a Cooling Chinese Economy

The latest data on Chinese imports and exports, below expectations, dropped the Dow Jones 230 points in premarkets today. The Dow Jones recovered but failed to turn green, ending the trading session down 0.36%.

Imports to China fell 7.6% year on year, while exports fell 4.4%.

According to recent reports, sources are warning that China is planning to lower its growth forecast to 6%. And, Moody’s has also found that “producers price inflation” has lowered over six consecutive months, a further sign of reduced demand in China.

Brent Crude Oil Price Drops 2%

The international benchmark for oil price, Brent crude, fell $1.48, or 2.5%, a barrel ending the trading session at 1.92% down at $59.27 a barrel.

Norbert Ruecker, head of macro and commodity research at Julius Baer said of China’s impact:

“Both imports and exports disappointed expectations and are set to revive fears about a global growth slowdown.”

Stephen Innes of Oanda echoed the sentiment saying:

“Oil prices are getting weighted down by the prospects of weaker economic growth in China.”

Despite hope last week of positive trade resolutions between the US and China, Innes added:

“This data drives home just how negative of an impact trade war is having on the Chinese and perhaps global economy.”

The import figures do not specifically point to a slowdown in China’s demand for oil, yet. Reuters calculations put China’s imports of crude oil up 30% in December 2018 compared to the previous year.

Oil futures also fell, the NYMEX-traded West Texas Intermediate (WTI) dropped 0.9% to $51.12 per barrel.

OPEC Cuts May Hold Back a Greater Impact on Oil Prices

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries including Russia agreed to cut oil output by 1.2 million barrels per day beginning this January. The move is designed to prevent market oversupply and boost oil price. This could be balancing today’s impact on crude price from China and slowdown fears.

Saudi Arabia’s Energy Minister Khalid al-Falih said today:

“The global economy is strong enough, I’m not too concerned. If a slowdown happens, it will be mild, shallow and short.”

Al-Falih is confident in the current performance of the oil market and does not believe OPEC should reconvene early to address the issue.

Analysts are predicting oil prices, per Brent Crude, to reach the mid-$60s and WTI to reach $55. This may depend on China’s economic performance later this year and the final outcome of US-China trade talks.

Krishna Memani, chief investment officer at OppenheimerFunds, said today he does not expect a US recession for at least five years. Memani believes a positive resolution between the US and China will happen as both countries have too much to lose, leaving the markets “home free.”

Author: P.H. Madore
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Oil up on OPEC output cuts, worries about Iran sanctions


Oil prices rose on Thursday, boosted by OPEC production cuts and the potential for new U.S. sanctions against Iran, but gains were limited by growing U.S. crude inventories.

Brent crude futures LCOc1 rose 26 cents to settle at $73.62 a barrel, a 0.35 percent gain. U.S. West Texas Intermediate (WTI) crude CLc1 rose 50 cents to settle at $68.43 a barrel, a 0.74 percent increase.

“The price move today is probably based off Iran and the tight oil supply market that we already have,” said Rob Thummel, portfolio manager at energy investment manager Tortoise Capital in Leawood, Kansas. “The margin for error right now is just so low in the oil market that you can’t just take supply off the market.”

Iran’s foreign minister said U.S. demands to change its 2015 nuclear agreement with world powers were unacceptable as a deadline set by President Donald Trump for Europeans to “fix” the deal loomed.

Trump has all but decided to withdraw from the accord by May 12, sources said on Wednesday, though exactly how he will do so remained unclear.

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Iran re-emerged as a major oil exporter in January 2016 when international sanctions against Tehran were suspended in return for curbs on Iran’s nuclear program.

Also supporting prices, North Sea oilfields connected to the Brent oil pipeline have stopped production due to a shutdown at the UK’s Sullom Voe oil terminal, the Brent pipeline operator said, reducing output of the crude.

Global oil supply has tightened with production cuts led by the Organization of the Petroleum Exporting Countries and its allies. The latest Reuters survey showed OPEC pumped around 32 million barrels per day (bpd) in April, slightly below its target of 32.5 million bpd, due largely to plunging output in Venezuela.

Russia on Thursday said its own compliance with a global deal with OPEC and other producers to curb output stood at 95.2 percent in April, with its output unchanged at 10.97 million bpd.

However, rising U.S. oil supply tempered oil futures gains.

On Wednesday, U.S. government data showed a 6.2-million-barrel jump in crude inventories last week. U.S. production also hit a new weekly record of 10.62 million bpd, ahead of top OPEC producer Saudi Arabia and just below No. 1 producer Russia.

Inventories at the Cushing, Oklahoma storage hub climbed by about 152,000 barrels in the week to May 1, according to market intelligence firm Genscape, traders who saw the data said.


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Author Stephanie Kelly

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What Happened to the Oil Glut?

Stored oil is at its lowest level in more than three years, partly due to OPEC and Russia’s output cuts

A glut of stored oil that helped keep prices low for years is almost gone, thanks to production cuts by OPEC and Russia, a humming global economy and a series of small but meaningful supply disruptions.

Excess inventories of stored oil by the world’s industrialized economies are now at their lowest level in more than three years, based on a five-year running average, according to data released Thursday by the Organization of the Petroleum Exporting Countries. After months of steepening declines, the cartel said commercial inventory levels shrunk a further 17.4 million barrels in February, to about 2.85 billion barrels.

That represents a surplus of just 43 million barrels, based on the five-year average. Two years ago, the storage surplus hit 400 million barrels.

The drain on storage is partly a consequence of a concerted effort by Saudi Arabia, its OPEC colleagues, and Russia, to throttle back output to bolster prices.

“The rebalancing process is well under way,” OPEC Secretary General Mohammed Barkindo told an energy summit in New Delhi on Wednesday.

The quickening depletion of excess stored oil has analysts throwing around a word they haven’t had to use that often in the past few years: shortages. Without much cushion in storage, the threat of supply outages can more quickly drain inventories—and boost prices.

Venezuelan crude output has been hobbled by political and economic instability there, and rising tensions between the U.S. and Russia over Syria have also contributed to worry over supply. President Donald Trump has threatened a missile attack against Syria, in retaliation for an alleged chemical attack by Syria’s government, which Moscow has backed during the country’s long civil war.

Syria doesn’t pump much oil itself, but the new tensions have raised the specter of bigger production outages across the oil-rich Middle East, should military action escalate. Many similar supply-shock worries have had only muted impact on oil prices in the recent past, thanks to the glut of oil in storage. With that cushion gone, analysts say geopolitics may again start playing an outsize role in oil markets.

“Global oil supply and demand are quickly approaching a balanced position after spending several years in an excessively high inventory mode,” said Dominick Chirichella, co-president of New York-based Energy Management Institute, in a report Wednesday. “Geopolitical risk is bubbling up in the oil pits.”

Saudi Arabia has indicated little appetite for opening up the spigots. In its report Thursday, OPEC said its collective production fell by an average 201,000 barrels a day. Part of the decline came from fresh, voluntary cuts by Saudi Arabia. Earlier this week, the kingdom said it would keep its overall crude-oil exports below 7 million barrels a day next month.

Saudi Oil Minister Khalid al-Falih told the New Delhi conference this week that “we will not sit by and let another glut resurface in the coming years and bring the market through the roller coaster that we have seen.”

Thinning inventories isn’t just down to OPEC-led cuts. Oil demand has been growing amid a rare, synchronized economic expansion by the world’s biggest economies. OPEC said it now sees demand for this year growing by about 30,000 barrels a day more than it had previously forecast. That growth is now expected to come to an average 1.63 million barrels a day for the year.

Amid that new appetite, a series of production outages are already sapping supply. Last month, OPEC says it lost about 100,000 barrels a day because of the crisis in Venezuela and disputes by rival political groups in Libya and Iraq.

All that has translated into higher oil prices. Brent, the international oil benchmark, has been hovering above $70 a barrel—levels not seen in three years.

The big question for markets now is whether, amid the tightening market, North American shale producers swing back into action. These smaller, nimbler producers have in previous periods of oil-price strength, ramped up output to take advantage of the higher prices.

That new production typically boosts supply, and eases prices back down again. In its report, OPEC upgraded its non-OPEC oil supply forecast for the year, saying Canada and the U.S. will pump about 90,000 barrels a day more than expected.


Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

Author: Benoit Faucon
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