Oil Futures Sell Off on China Slowdown

Oil Futures Sell Off on China Slowdown

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Intercontinental Exchange Brent futures settled lower Tuesday. Data from China showing the world's second largest economy grew at its slowest pace in 28 years in 2018 pressured the markets, along with a downgrade in this year's world economic outlook from the International Monetary Fund.

February West Texas Intermediate futures reversed from a $54.24 bbl six-week high on the spot continuous chart to expire down $1.23 at $52.57 bbl, and the March contract settled down $1.03 at $53.01 bbl.

Markets in the United States were closed Monday for Martin Luther King Jr. Day, with ICE March Brent settling down $1.24 at $61.50 bbl, ending at a $0.12 premium to the April contract. Brent futures traded at a $63.15 six-week spot high on Monday.

NYMEX February ULSD futures settled down 1.49cts after reversing from a $1.9265 gallon six-week high on the spot continuous chart, with February RBOB futures tumbling 5.13cts from Friday's five-week spot high settlement to $1.4015 gallon.

Optimism for a U.S.-China trade agreement that rallied equities and oil futures late last week was pushed aside by data from China's National Bureau of Statistics showing the Chinese economy grew at 6.6% in 2018, the slowest growth rate for the world's second largest economy since 1990, with fourth quarter year-on-year growth at 6.4%.

The statistics show the softening economy was further battered by U.S. tariffs on Chinese imports, prompting U.S. President Donald Trump to tweet that it was time for China to make a trade deal. Top trade representatives from the United States and China will meet Jan. 30-31 in Washington, D.C.

On Monday, the IMF warned of slowing growth in the world economy this year, revising down its outlook from October when it said global economic growth would plateau this year.

IMF trimmed expected world output for this year by 0.2% from October to 3.5% and for annualized growth in 2020 by 0.1% to 3.6%. IMF left unchanged that China's economy would expand at a 6.2% annual rate for both 2019 and 2020, and boosted by 0.1% expected gross domestic product for India to 7.5% this year, leaving unchanged 2020's 7.7% expansion rate.

IMF lowered growth in the euro area 0.3% to 1.6% for this year, while lowering GDP expectations for Europe's largest economy by 0.6%, anticipating a 1.3% annualized growth rate for Germany which narrowly escaped recession in late 2018. The data from both China and Germany highlight the slowdown in world trade due to the U.S.-China trade dispute.

After a troubling year for Saudi Arabia, IMF slashed 0.6% off its growth expectations for the kingdom in 2019 from October to 1.8%, although expects a rebound in 2020, revising up growth 0.2% to 2.1%.

In its monthly report, the Energy Information Administration Tuesday afternoon projected tight shale oil production in seven key U.S. producing regions would increase 62,000 bpd from this month to average 8.179 million bpd in February, with output from the Permian Basin accounting for 23,000 bpd of the growth with production averaging 3.854 million bpd. The outlook follows Friday's data from Baker Hughes showing the U.S. oil rig count dropped 21 last week and 33 during the first three weeks of 2019 to an eight-month low at 852 rigs.

Brian L. Milne can be reached at brian.milne@dtn.com