WEB DESK: Oil prices fell on Monday after China and South Korea posted weak economic data, while fading prospects for a coordinated output cut by leading crude exporters also hurt the market.
Chinese data showed its manufacturing sector had contracted at the fastest pace since 2012 in January, adding to worries about demand from the world’s top energy consumer at a time when the market is already weighed down by a large supply overhang.
Numbers from South Korea were also gloomy, with exports down to levels last seen during the 2009 financial crisis.
Oil prices also came under further pressure from dimming prospects of a coordinated production cut by exporters like the Organization of the Petroleum Exporting Countries (OPEC) and Russia due to their differences.
“We do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists’ forecast,” Goldman Sachs said.
Also, OPEC-member Iran, which last month was allowed to fully return to markets after years of sanctions, is not willing to participate in any cuts.
Partly because of Iran’s return, OPEC production has jumped to 32.60 million barrels per day (bpd), its highest in years, adding to a global glut of over 1 million bpd in excess of demand, which has pulled down oil prices 70 percent since mid-2014.
BMI Research has cut its oil price outlook for Brent to a 2016 average of $40 per barrel from $42.5 previously, citing the oversupply. It expects WTI to average $39.50.
“Counteracting oil’s upside momentum in 2016 will be the weakness of the Chinese yuan, lingering concerns over global economic growth and the well-stocked inventories of crude and fuels,” BMI said, adding that a gradual price rise was expected in the second half of the year.
Currently, Brent for April 2017 delivery is $7.8 per barrel above that for April this year, up from a premium of just $5.7 for this time spread on Nov. 1.
Prices later this year could draw support from an expected fall in U.S. output, where many producers are struggling.
“Headwinds are mounting for U.S. production as hedges roll off, credit redeterminations near, and $30 oil and $2.30 gas begin to take their toll on producer cash flow,” Barclays said.
“We forecast U.S. crude oil production to average $9.0 million barrels per day in 2016, down 460,000 barrels per day year-on-year,” it added.