Crude oil trading outlook: futures decline as China growth bottoms, IMF forecast cut

West Texas Intermediate and Brent crude fell for a second day on Tuesday as Chinas economy expanded at the slowest pace since 1990 and the IMF cut its global growth outlook for this year and the next, fanning concerns that downbeat economic activity will fail to soak rising oil supplies.

US crude for delivery in March slid $1.55 to $47.58 by 8:36 GMT on the New York Mercantile Exchange, having shifted between $49.20 and $47.44. The contract settled at $49.13 on Friday and floor trading was suspended on Monday for the Martin Luther King Jr. holiday.

Meanwhile on the ICE, Brent for settlement in the same month fell by $0.47 to $48.37 per barrel, having ranged between $48.97 and $48.21 a barrel during the day. The European benchmark crude slid 2.65% to $48.84 on Monday and traded at a premium of $0.79 to its US counterpart.

Oil prices remained pinned down as Chinas economic expansion undershot the governments official target, while the IMF followed the World Bank in cutting its global growth outlook at times of ever-growing crude oil output by major producers.

Chinas National Bureau of Statistics reported on Tuesday that the worlds second-largest economy expanded by an annualized 7.3% in the fourth-quarter, exceeding broad expectations for 7.2%. However, full-year growth eased to 7.4% in 2014, the lowest since 1990, falling short of the governments targeted 7.5%. Quarter-on-quarter GDP growth slid to 1.5% from 1.9% in Q3.

The Asian country will account for 11% of global consumption this year, according to the International Energy Agency, compared to 21% for the US. Although Chinas oil consumption continues to increase, this could provide only short-term support as long-term demand prospects are tied to robust economic growth.

Meanwhile, the International Monetary Fund slashed its global economic growth outlook for the year to 3.5% from 3.8% estimated in October, while also revising down its forecast for 2016 to 3.7%, compared to 4.0% previously. This was the steepest cut in three years and included lower expansion prospects for the Eurozone, Japan, China and Latin America, as well as Russia and other oil exporters, including Saudi Arabia. An exceptions was the US, which received an upward revision to 3.6% from Octobers forecast of 3.1%.

Olivier Blanchard, the IMF’s chief economist, said: “The world economy is facing strong and complex cross currents. On the one hand, major economies are benefiting from the decline in the price of oil. On the other, in many parts of the world, lower long-run prospects adversely affect demand, resulting in a strong undertow.”

OPEC determination

Oil prices have fallen by more than 50% since a June peak as the US pumped at the highest pace in more than three decades, while OPEC resisted calls to cut its own output, exacerbating concerns that slowing global economic growth will fail to soak the additional supply.

Iraq, the oil cartel’s second-biggest producer, is pumping at a record rate of 4 million barrels per day, Iraqi Oil Minister Adel Abdul Mahdi said. The country plans to boost crude exports to 3.3 million barrels per day in 2015, including sales from the semi-autonomous Kurdish region.

Meanwhile, Iranian Oil Minister Bijan Namdar Zanganeh said that Iran is strong enough to withstand an even steeper slump in oil prices.

“If the oil prices drop to $25 a barrel, there will yet again be no threat posed to Iran’s oil industry,” Zanganeh said yesterday, cited by the state-run Fars news agency.

Iran, OPECs fourth-largest producer, together with Venezuela, holder of the worlds biggest proven crude reserves, has called for OPEC to work together for the recovery of the oil market.

However, the oil cartels leading producers have underscored their determination to retain market share and have ruled out an extraordinary meeting before the next scheduled one in Vienna on June 5th.

Saudi Arabian supplies surged to a seven-month high of 7.3 million barrels per day in November from 6.9 million bpd in October, data by the Joint Organisations Data Initiative showed, while output eased to 9.61 million bpd from 9.69 million a month earlier. OPEC’s leading producer reduced its delivery prices to Asia in November to gain market share, while steering the 12-member group towards a defensive stance at the November 27 meeting in Vienna, when OPEC kept its 30-million bpd production quota unchanged.

According to OPEC Secretary-General Abdalla El-Badri, an increase of around 6 million barrels per day in non-OPEC supplies has helped trigger the steep fall, which sent prices to their lowest in almost six years.

US output

The Energy Information Administration reported on Wednesday that US crude production rose by 60 000 barrels per day to 9.192 million bpd in the seven days ended January 9th, the highest level for weekly data dating back to January 1983.

Amos Hochstein, Special Envoy and Coordinator for International Energy Affairs at the U.S. Department of States Bureau of Energy Resources, said that oil markets can adjust themselves without intervention and that the government will let the market “decide what happens” with supply and demand.

Market players now looked ahead at the ZEW German and Eurozone economic sentiment survey to gauge demand prospects in Europe, as well as Thursdays all-important ECB policy meeting when the central bank is broadly expected to announce a quantitative easing program.