Oil prices dropped pulled down by a US supply glut
Oil prices dropped on Wednesday, pulled down by a US supply glut and a fall in stock markets as China’s government warned of rising economic headwinds and as Japan was expected to report another quarter of GDP contraction.
International Brent crude oil futures LCOc1 were at $61.14 per barrel at 0705 GMT, down 94 cents, or 1.5%, from their last close.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $52.44 per barrel, down 81 cents, or 1.5 percent.
Reuters technical commodity analyst Wang Tao said the WTI might soon test support at $51.75 a barrel, and Brent was threatening to fall below $60 a barrel.
Oil prices were pressured by the API’s weekly report that US crude oil inventories grew by 5.4 million barrels in the week to Nov. 30, to 448 million barrels, indicating that the oil markets of the US are in a growing glut.
Official US government oil output and inventory data will be released on Wednesday.
Broadly, the slide in US oil followed a fall in global stock markets on Tuesday, with investors concerned about the threat of widespread economic slowdown.
The key to the global economic prospect will be whether the United States and China can resolve their trade disputes. Washington and Beijing announced a 90-day truce last weekend, during which no country would further increase tariffs on imports.
In a sign to ease tensions between the two biggest world economies, the Chinese oil trader Unipec, intends to resume US crude oil shipments to China by March after the Xi-Trump deal at the G20 meeting has reduced the risk of tariffs being imposed on these imports, people with the knowledge of the matter said.
Still, the truce may not continue. US President Donald Trump threatened on Tuesday to set “major tariffs” on Chinese goods imported to the United States if his administration failed to reach the desired deal with Beijing.
China’s state council on Wednesday issued guidance for employment support as the economy is slowing down, saying the country should pay “high attention” to the impact on employment from rising economic headwinds.
Bank of America Merrill Lynch said in its 2019 economic outlook, published on Tuesday, that “most major economies are likely to see decelerating activity”, although it added that “a steady stream of monetary and fiscal stimulus measures” was expected to stem the slowdown.
In Asian powerhouse Japan, the economy is expected to have contracted more again in the third quarter, slowing down, according to a study showed on Wednesday, with Q3 annualized GDP is expected to drop by 1.9%.
A slowing economy may further undermine oil prices.
Bank of America said it expected Brent and WTI prices to average $70 and $59 per barrel respectively in 2019.
Brent and WTI have averaged $72.80 and $66.10 per barrel so far n 2018.