Oil continues to extend losses on weak US, China data

by MARK RAO/ pic by BLOOMBERG

Crude oil prices continue to plummet as protracted trade tensions begin chipping away at the US and Chinese economies – the world’s two largest oil consumers today.

After closing at a year-high of US$74.57 per barrel on April 24, Brent oil declined 18.5% to trade as low as US$60.75 per barrel today as the oil narrative shifted from supply disruptions to growing demand fears.

Worrying economic data from the US and China, which collectively made up over 40% of total crude oil consumption in 2016, rattled the oil market and saw traders heading for the exit.

OANDA Corp senior market analyst Edward Moya said the ongoing trade war is starting to ebb away at the US market while uncertainty will remain until the G20 summit is convened at the end of the month.

“Oil prices fell further into bear market territory after US factory and housing data showed the world’s largest economy is slowing down faster than expected,” he said in a research note today.

“Uncertainty on the trade front remains high and markets will remain undecided until we see the events at the G20 summit in Japan unfold.”

The Organisation of the Petroleum Exporting Countries (OPEC) and their allies, who have been propping up oil prices since 2017 via production cuts, could extend their agreement and continue to control output to mitigate falling demand.

However, Moya said OPEC and their allies are at a critical juncture as plans to extend production cuts may prove difficult as they are unable to reach a consensus on when to meet.

Vanguard Markets Pte Ltd managing partner Stephen Innes said oil continues to extend losses on the deteriorating outlook for energy demand.

“Oil prices continued to sag plumbing the depths of the recent ranges as the demand outlook remains very soggy, compounded by the worrying read on US manufacturing activity,” he said in a research note today.

“The market is in a rut and desperately in need of some robust economic data to get it out of this funk.”

The US’ Empire State business conditions index fell into negative territory in June for the first time in more than two years, while China’s industrial output growth fell to an over 17-year low in May.

Meanwhile, US shale output – a persistent bane to OPEC and their allies – is expected to rise approximately 70,000 barrels to 8.52 million barrels per day next month.

Current oil prices are markedly below the Malaysian government’s average oil price budget of US$70 per barrel and Petroliam Nasional Bhd’s (Petronas) budget of US$66 per barrel but not material enough to cause the former to recalibrate its budget or the latter to incur costly provisions.