Oil prices are falling on Monday
Oil prices dropped on Monday in line with weaker stock markets after evidence that economic growth in China, the world’s second-largest consumer of crude oil, calmed down in 2018.
Brent crude oil futures LCOc1 were last down 35 cents on the day at $62.35 a barrel by 0946 GMT, while U.S. crude futures CLc1 were down 23 cents at $53.57 a barrel.
Broader financial markets were weaker since data showed that China’s economic growth in 2018 slowed down to the weakest in 28 years, at 6.6% versus 6.8% in 2017.
Although the slowdown was in line with expectations and not as sharp as some analysts expect, the cooling of global No. 2 economy casts a shadow over global growth.
“It remains quite likely that the trade spat with the U.S. has played a part in this latest slowdown, but investors should also factor in that it simply isn’t possible for the Chinese economy to grow at the pace that it has over the last 10 years, in the next 10 years, as the law of diminishing returns kicks in, and the economy becomes more mature,” CMC Markets chief market analyst Michael Hewson said.
While there are fears that the slowdown in the world economy may affect the growth of oil demand and therefore the price prospect, the cuts in production implemented by the Organization of Petroleum Exporting Countries (OPEC) are likely to support crude oil prices, analysts say.
“You can’t justify oil prices at these levels. We’re looking basically at an average of almost $70 a barrel for Brent in 2019,” ING commodities strategist Warren Patterson said.
“I am getting increasingly concerned about how tight the market will be going into 2020.”
A separate report from China’s National Bureau of Statistics on Monday showed that crude oil refinery output rose to a record 12.1 million barrels per day (bpd), up 6.8% more than in the last year.
In the United States, energy companies have cut the number of rigs drilling for oil by 21 in the week to Jan. 18, with a total count of 852, which is the lowest level since May 2018.
It was biggest drop since February 2016, as drillers reacted to the 40-percent plunge in U.S. crude prices late last year. However, U.S. crude oil production C-OUT-T-EIA still rose by more than 2 million bpd in 2018, to a record 11.9 million bpd.
With the rig count stalling, the growth rate last year is unlikely to be repeated in 2019, although most analysts expect annual output to reach an average of over 12 million barrels per day.