Investors’ growth anxiety sends oil prices tumbling

Singapore — Oil prices fell on Friday amid growing investor jitters over the global economy, after the European Central Bank (ECB) warned overnight of continued weakness and as fresh data showed Chinese exports and imports slumped last month.

With surging US supply also unsettling markets, international benchmark Brent crude oil futures were at $65.83 a barrel at 3.58am GMT, down 47c, or 0.7% from their last close.

US West Texas Intermediate (WTI) crude oil futures were at $56.32 a barrel, down 34c, or 0.6%, from their last settlement.

Financial markets, including crude oil futures, took a hit after ECB president Mario Draghi said on Thursday the economy was in “a period of continued weakness and pervasive uncertainty”. Europe’s economic weakness comes as growth in Asia is also slowing down.

A slowdown in economic growth would also likely result in stalling fuel demand, putting pressure prices.

China’s February dollar-denominated exports fell 21% from a year earlier, coming in far worse than analysts’ expectations, while imports dropped 5.2%, official data showed on Friday.

On the supply side, prices have been receiving support this year from output cuts led by oil cartel Opec. Together with some non-affiliated producers like Russia, the producer group has pledged to withhold about 1.2-million barrels a day of supply to tighten markets and prop up prices.

But these efforts are being undermined by soaring US crude oil production, which has increased by more than 2-million barrels a day since early 2018, to an unprecedented 12.1-million barrels a day. That makes America the world’s biggest producer, ahead of Russia and Saudi Arabia.

US to become top oil exporter?

As a result, US crude exports have also been chasing new records, reaching 3.6-million barrels a day in February — more than Opec members like the United Arab Emirates (UAE), Kuwait or Iran produce.

Some analysts even expect the US to soon overtake Saudi Arabia as the world’s biggest oil exporter.

“In a pivotal geopolitical shift, the US will soon export more oil and liquids than Saudi Arabia,” consultancy Rystad Energy said this week. Liquids include noncrude oil products like natural gas liquids (NGLs).

“The [Saudi] kingdom currently exports some 7-million barrels a day of crude oil plus about 2-million barrels a day of NGLs and petroleum products, compared with the US now exporting approximately 3-million barrels a day of crude oil and 5-million barrels of NGLs and petroleum products,” Rystad said.

The consultancy “forecasts that US oil production … will grow by close to another 1-million barrels a day in 2019”.

Beyond added supply to global markets and likely downward pressure on crude prices, Rystad said this export surge would have huge benefits for the US economy.

“The US trade deficit will evaporate, and its foreign debt will be paid quickly thanks to the swift rise of American oil and gas net exports,” said Rystad Energy senior partner Per Magnus Nysveen.

Reuters