Oil is dropping on increased US rig count, China industrial slowdown
Oil prices dropped 1% on Monday after US companies added rigs for the first time this year, a signal that crude oil production could grow even more, and as China, the world’s second largest oil user, reported further signs of an economic downturn.
International Brent crude oil futures were at $60.74 a barrel at 0804 GMT, down 90 cents, or 1.46%.
U.S. crude oil futures were at $52.84 per barrel, down 85 cents, or 1.58 percent, from their last settlement.
US crude oil output, which at the end of last year rose to a record 11.9 million barrels per day, weighed the oil markets.
In a sign production may rise further, U.S. energy firms last week raised the number of rigs looking for new oil for the first time in 2019 to 862, an addition of 10 rigs, Baker Hughes energy services firm said in its weekly report on Friday.
Beyond oil supply, a key issue for this year will be the magnitude of demand growth.
Oil consumption is steadily rising and is likely average more than 100 million barrels per day for the first time in 2019, driven by a boom in China.
However, the global economic slowdown, amid a trade dispute between Washington and Beijing is weighing on fuel demand-growth expectations.
The profit of Chinese industrial firms shrank for a second consecutive month in December on sluggish factory activity, putting more pressure on the world’s second-largest economy, which reported its slowest growth rate last year since 1990.
“Persistent weakness seen in Chinese economic data has raised downside risks … of lower crude oil imports by Beijing in 2019,” said Benjamin Lu of Singapore-based brokerage Phillip Futures.
China is trying to stem the delay by aggressive fiscal stimulus measures.
But there are fears that these measures may not have the desired effect as China’s economy is already burdened with a huge debt, and some of the larger government spending may be a little useful.
Increased US supply – the United States is now the world’s largest oil producer – and the economic slowdown are weighing on the oil price outlook.
“We expect U.S. crude oil prices to range between $50-$60 per barrel in 2019 and about $10 more per barrel for Brent,” Tortoise Capital Advisors said in its 2019 oil market outlook.
Tortoise added, though, that oil prices would be supported above $50 per barrel as it was “very clear that Saudi Arabia will no longer be willing to accept these lower oil prices.”
The Organization of Petroleum Exporting Countries (OPEC), de facto led by Saudi Arabia, began cutting supplies at the end of last year to tighten markets and buoy prices.