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New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange traded sharply lower at the start of a new business week amid growing concerns that a systemic slowdown in China’s economy could temper global oil demand.
As financial and political leaders gather this week at the Swiss resort town of Davos for the World Economic Forum, investors reassess the global economic growth outlook amid fresh signs of a slowdown of China’s economy. China- the world’s biggest importer of crude reported its fourth quarter GDP growth came in at 6.4 percent, the lowest point in almost a quarter century. This is raising serious concerns over structural growth deceleration in the second largest economy, especially after China reported a sharp drop in its trade figures just a week ago.
Adding to the heightened concerns, the International Monetary Fund revised its global growth outlook down to 3.5 percent for 2019 and by 0.1% for 2020 to 3.6%. Even though, the revisions are modest, the fund’s managing director, Christine Lagarde, said that more significant downward corrections could be on the horizon.
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These are just the latest signposts suggesting that the negative impact of the trade war between the United States and China on the global economy may be greater than previously estimated. As Washington and Beijing prepare for the critical round of talks next week, investors will remain focused on economic data coming from China and any signs of a breakthrough between the two economic powerhouses, which rocked global markets for much of 2018.
In physical markets, Russia’s commitment to production cuts was under scrutiny by the International Energy Agency in its monthly oil report released last Friday. The IEA said that Russia’s crude and condensate production climbed by 80,000 barrels a day in December to a “new time high” of 11.45 million barrels. It also noted that “while Saudi Arabia is determined to protect its price aspirations by delivering substantial production cuts, there is less clarity with regards to its Russian partner”. Last week, Saudi Arabia Energy Minister Khalid al- Falih offered a rare criticism on the slow pace of production cuts from Russia that is gradually lowering its output to meet its output cut target of 230,000 b/d by the end of 1Q 2019. Currently, Russia has reduced production by just 30,000 b/d, while the original pledge in Vienna was to cut between 50,000-60,000 b/d for the first month of the year. Investors will continue to keep a close eye on the pace of Russian production through the end of the month for an indication of whether the country is complying with the OPEC deal.
By Liubov Georges for Oilprice.com
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Liubov Georges has graduated NYU with Master's Degree in Energy Policy and Economics. Currently, she is an energy analyst at DTN Oil&Gas