Yemisi Izuora
Expectations of possible weak economic growth by China in almost three decades amid waning domestic demand and US tariffs has affected oil prices which dipped on Monday.
However, analysts expect oil prices to be relatively well supported this year by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC allies, including Russia.
International Brent crude oil futures were at $62.43 per barrel down 27 cents, or 0.4 per cent from their last close, while the U.S. West Texas Intermediate, WTI, crude futures were down 22 cents, or 0.4 per cent at $53.58 a barrel.
China is expected to report that economic growth dropped to its slowest in 28 years in 2018 amid weakening domestic demand and the trade standoff with the United States.
Growing signs of weakness in China, which has generated nearly a third of global growth in the past decade, are gravitating worries about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.
“The global outlook remains murky, despite emerging positives from a dovish Fed (now boosting U.S. mortgage applications), faster China easing (China credit growth stabilizing) and a more durable U.S.-China truce,” U.S. bank J.P. Morgan said in a note.
Despite this, analysts said supply cuts led by OPEC would likely support crude oil prices.
“Brent can remain above $60 per barrel on OPEC plus compliance, expiry of Iran waivers and slower U.S. output growth,” J.P. Morgan said.
It recommended investors should “stay long” crude oil.
Researchers at Bernstein Energy said the supply cuts led by OPEC “will move the market back into supply deficit” for most of 2019 and that “this should allow oil prices to rise to U.S. $70 per barrel before year-end from current levels of U.S.$60 per barrel.”
In the United States, energy firms cut 21 oil rigs in the week to January 18, taking the total count down to 852, the lowest since May 2018, energy services firm Baker Hughes said in a weekly report on Friday.
It was biggest decline 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 still rose by more than 2 million barrels per day (bpd) in 2018, to a record 11.9 million bpd.
With the rig count stalling, last year’s growth rate is unlikely to be repeated in 2019, although most analysts expect annual production to average well over 12 million bpd, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.