Concerns over reports Monday of a declining Asian economy helped push crude oil prices down for the second straight trading day. The World Bank downgraded its growth expectations for the Asia-Pacific region, where the Chinese economy is showing signs of flattening. In Europe, meanwhile, trouble continued, though leaders there agreed to set up a $648 billion recovery fund. Though the IMF praised Middle East economies for maintaining a watchful eye on global oil markets, the slide in energy prices continued into the second week of October.
The World Bank, in a report published Monday, said economic growth in East Asia and the Pacific region was expected to slow by a full percentage point to 7.2 percent for the year. Though China is expected to recover next year after a series of stimulus measures go into effect, weak exports and lower investment growth are expected to cut Beijing's gross domestic product from 9.3 percent in 2011 to 7.7 percent this year.
"The East Asia and Pacific region’s share in the global economy has tripled in the last two decades, from 6 percent to almost 18 percent today, which underscores the critical importance of this region’s continued growth for the rest of the world," said World Bank Group President Jim Yong Kim, in a statement.
Last week, the Asian Development Bank cut the growth estimate for China's GDP, saying economic forecasts from Europe could be "a serious drag" on global markets. Though European leaders this week agreed to establish a $648 billion fund to help the sovereign debt crisis, fiscal overseers said they might not need it. The outlook for the Spanish, Greek and German economies, however, continued to weigh on the minds of international investors.
The news of a weakening Asia and ongoing issues in the Eurozone helped drag on crude oil prices, with Brent crude trading below $112 per barrel Monday. IMF Chief Christine Lagarde told delegates from the Gulf Cooperation Council last weekend that their economies were enjoying "high growth," which she said lead to "higher export volumes" and "buoyant hydrocarbon revenue." Oil prices, however, shrugged off her optimism and followed last week's 0.33 percent decline with further losses.
For motorists in the United States, meanwhile, a softening of the crude oil market should spill over to gasoline. Motor group AAA reported a gallon of regular unleaded gasoline was, on average, $3.81 for U.S. commuters. As the summer driving season approached, consumers saw prices at the pump hover around $4 per gallon. The fall out from Hurricane Isaac put further strains on the retail gasoline market, though prices have held more or less steady since late September. In California, however, prices approached the $5 mark because of a series of refinery issues.
OPEC for September predicted more of the same for the global economy, noting few dark clouds were forecast on the horizon. The cartel has stuck to assertions that some growth may return to the global economy next year, a sentiment reinforced by the World Bank. The OPEC oil market report for October is scheduled for a Wednesday release.
By. Daniel J. Graeber of Oilprice.com