Oil prices drop as China slowdown bites

London — Oil prices fell more than 1% on Tuesday on signs that an economic slowdown in China is spreading, stoking concerns about global growth and fuel demand.

The gloomy news from the world’s second-largest economy and top importer of oil pulled down financial markets across Asia.

International Brent oil futures were at $61.94 a barrel at 9.50am GMT, down 80c or 1.28%. US West Texas Intermediate (WTI) crude futures were at $53.16 a barrel, down 1.19% or 64c.

China reported the lowest annual economic growth in nearly 30 years on Monday. Its state planner warned on Tuesday that falling factory orders pointed to a further drop in activity in coming months and more job losses.

While China’s oil imports have so far defied the economic slowdown, hitting a record above 10-million barrels per day (bpd) in late 2018, many analysts believe the country has reached peak energy growth, with its thirst set to wane.

“Slowing manufacturing activity in China is likely weighing on demand,” said Singapore-based tanker brokerage Eastport, adding that industrial slowdowns tended to be leading indicators that fed gradually into lower demand for shipped oil products.

In a sign of spreading economic weakness, growth in South Korea’s export-oriented economy slowed to a six-year low of 2.7% in 2018, official data showed on Tuesday.

On Monday, the International Monetary Fund (IMF) trimmed its 2019 global growth forecast to 3.5%, from 3.7% in last October’s outlook.

“This was the second downturn revision in three months, and we can still see further downgrades in the near future if trade tensions escalate, the UK exits with a no-deal from the EU, or China’s economic growth drops more sharply,” said Hussein Sayed, chief market strategist at futures brokerage FXTM.

Despite the darkening outlook, oil prices have been getting some support from supply cuts since the beginning of this month by oil cartel Opec. “The effects of Opec-led cuts … will undoubtedly place a price floor under crude oil,” Singapore-based brokerage Phillip Futures said.

But official data from the world’s top exporter Saudi Arabia on Monday showed that its crude oil exports in November rose to 8.235-million bpd from 7.700-million in October, indicating there may be no shortage of supply in some markets.

Reuters