Oil Down on Weak China Growth

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were down Monday morning, retreating after Friday's rally following data from China showing that economic growth there fell during the third quarter to a six-year low while supply continued to outpace demand.

At 8 a.m. CDT, NYMEX November WTI futures fell 94 cents to $46.32 barrel ahead of its expiration on Tuesday at the close of formal trade. December ICE Brent crude declined $1.18 to $49.28 bbl.

NYMEX November ULSD futures dropped 3.37 cents to $1.4629 gallon and the November RBOB futures contract tumbled 4.04 cents to $1.2876 gallon.

On Wall Street, U.S. stock markets moved lower while the dollar index rose to a four-day high on risk-off trade after China announced its gross domestic product. The country's National Bureau of Statistics said third quarter GPD grew quicker than expected, at 6.9% versus estimates calling for 6.8%, but below the 7.0% growth rate for the first two quarters of this year. That's the slowest growth rate for the world's second biggest economy since first quarter 2009 despite a raft of stimulus measure implemented this year.

Weak exports and manufacturing sectors were a drag on China's economy, and other data from China showed sluggish investment and industrial production, suggesting Beijing is having a hard time shifting from an export-led economy to one led by domestic consumers.

While Beijing has repeatedly said the economy will grow at a 7.0% in 2015, a number of analysts believe China won't meet the target and the impact of slow growth is seen spreading globally. Worries about China's economic slowdown have hammered the oil market since the summer, exacerbating concerns about demand.

Meantime, the glut in global oil supply remains despite slowing production in the United States. The Organization of Petroleum Exporting Countries is pumping more than an agreed 30 million bbl output ceiling. OPEC said last week that its output rose 109,000 barrels per day in September to 31.57 million bpd.

Iran also expects to double its oil exports over the next few years after its deal with major powers went into effect over the weekend. The July 14 nuclear agreement was officially adopted on Sunday, and it seeks deep cuts in Iranian nuclear programs in exchange for sanctions relief.

The U.S. expects Iran will take months to live up to its end of the deal, so there won't sanctions relief before that happens.

Domestically, after peaking in April at 9.6 million bpd, U.S. crude oil production has since fallen and declined 80,000 bpd to 9.1 million bpd during the week-ended Oct. 9, according to data from the Energy Information Administration. Crude oil inventories grew by 7.6 million bbl, the highest increase in six months, EIA added.

Active U.S. oil rigs fell 10 last week and 995 lower than a year earlier, according to Baker Hughes. Rig counts provide a guide to production trend.

Global production of refined oil products is also reportedly running ahead of demand.

"The recent build-up of refined product stocks is mostly a function of global refinery run growth year-over-year exceeding global oil demand growth by roughly 57% over Q2 and Q3 2015," said Barclays Capital. "Offshore build-up of refined products on tankers has also been reported since September. But this is largely due to technical and logistical constraints, more so than available capacity for onshore refined products storage being fully used, in our view."

George Orwel can be reached at george.orwel@telventdtn.com