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Crude oil futures declined on new data from China showing that exports dropped by more than expected, providing fresh evidence of a slowdown in the Chinese economy. For April delivery, NYMEX oil dropped by 1.2% to $101.32 per barrel. Brent crude also dropped by 0.9% to $107.97.
China released data showing that its exports declined by 18% in February from a year before. This is the largest drop off in six months. A slowdown in the Chinese economy would slow the growth of oil demand, sending prices down. The Chinese government reiterated its growth target of 7.5% for 2014. However, economic analysts are worried that provincial level debt, a real estate bubble that is beginning to cool, and an effort to rein in lending could all contribute to a “hard landing” for the Chinese economy. Such concerns weigh on the markets, and put downward pressure on commodity prices.
Yet a hard landing is not a given. The Chinese Lunar New Year holiday could have distorted February’s economic data. But taken together, January and February showed that exports declined 1.6%.
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For investors, negative economic data from China seemed to outweigh the ongoing conflict in Ukraine. Crimea’s most recent attempts to break away from Ukraine and join Russia have heightened tension between Russia and the West over the future of Ukraine. The U.S. and some European countries have declared Crimea’s referendum on independence as unconstitutional.
These geopolitical tensions have affected oil prices. "With mixed industrial production data out of Europe added in, oil would probably be even lower were it not for events in the Crimea and Libya," Tradition Energy analyst Addison Armstrong wrote in a comment Monday morning, according to the Wall Street Journal. In Libya, the central government promised to destroy a North Korean-flagged oil tanker attempting to export oil from rebel controlled ports.
By Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com