Oil con­tin­ues slide on Iraq out­put boom, weak China

Financial Mirror (Cyprus) - - FRONT PAGE -

Oil prices con­tin­ued to fall on Tues­day after Iraqi crude out­put surged to record lev­els, the IMF cut its global growth out­look and China’s growth for 2014 un­der­shot a gov­ern­ment tar­get and hit its weak­est an­nual ex­pan­sion in 24 years.

Crude fell as much as 4.9% in New York and 2.2% in London, with Iraq pump­ing 4 mln bar­rels a day and will boost ex­ports, Oil Min­is­ter Adel Ab­dul Mahdi said at a news con­fer­ence in Bagh­dad.

The IMF made the steep­est re­duc­tion to its global-growth out­look since Jan­uary 2012 in its quar­terly global out­look re­leased on Mon­day ahead of the World Eco­nomic Fo­rum in Davos.

Oil slid more than 50% since June as the U.S. pumped at the fastest pace in more than three decades and the Or­gan­i­sa­tion of Pe­tro­leum Ex­port­ing Coun­tries re­sisted calls to re­duce pro­duc­tion.

Gold­man Sachs Group Inc. and So­ci­ete Gen­erale SA were among banks to re­duce their price forecasts last week.

“We con­tinue to get news of ris­ing sup­plies and a shaky econ­omy,” John Kil­duff, a part­ner at Again Cap­i­tal LLC, a New York-based hedge fund, told Bloomberg. “The surge in Iraqi pro­duc­tion is go­ing to add bar­rels to an over­sup­plied mar­ket. The IMF re­port was lousy and fur­ther crimps the de­mand out­look.”

Brent for March set­tle­ment fell 56 cents, or 1.2%, to $48.28 a bar­rel on the London-based ICE Fu­tures Europe ex­change, fol­low­ing a 2.7% drop on Mon­day.

The IMF made the deep­est re­duc­tions in places suf­fer­ing from crises, such as Rus­sia, or for oil ex­porters in­clud­ing Saudi Ara­bia. The U.S. was the ex­cep­tion, with an up­grade to the fore­cast for the world’s largest econ­omy to 3.6% growth in 2015, up from 3.1% in Oc­to­ber.

GDP in China, the world’s sec­ond-big­gest oil con­sumer, rose by 7.3% in the three months ended De­cem­ber com­pared with a year ear­lier, the Na­tional Bureau of Statis­tics re­ported in Beijing. That sur­passed a me­dian es­ti­mate of 7.2% in a Bloomberg News survey of 50 econ­o­mists.

China will ac­count for 11% of global oil de­mand this year, com­pared with 21% for the U.S., ac­cord­ing to forecasts from the Paris-based In­ter­na­tional En­ergy Agency.

OPEC, which sup­plies about 40% of the world’s crude, main­tained its out­put quota of 30 mln bar­rels a day agreed at a meet­ing on Novem­ber 27 and pumped 30.2 mln bpd in De­cem­ber, ex­ceed­ing its tar­get for a sev­enth straight month, ac­cord­ing to data com­piled by Bloomberg.

Re­cent price falls have steep­ened the price dif­fer­ence be­tween oil for im­me­di­ate de­liv­ery and for bar­rels for sup­ply at a later stage, known as a con­tango, ac­cord­ing to Reuters.

“Pro­duc­ers glob­ally are strug­gling to find buy­ers for their crude, which is re­flected in the con­tan­gos in the Brent and WTI fu­tures curves,” Bar­clays said in a note.

Brent’s con­tango be­tween de­liv­er­ies in March this year and a year later is cur­rently around $10 per bar­rel.

“Re­fin­ers will run any crude that is eco­nom­i­cally and tech­ni­cally pos­si­ble to make a mar­gin while mar­gins are at­trac­tive (although prod­uct stocks are pil­ing up),” Bar­clays said.

Ad­di­tional crude is go­ing into stor­age to be sold at higher prices in the fu­ture, the bank added.

Moody’s said on Tues­day that the low oil prices could neg­a­tively af­fect South-East Asian ex­plo­ration and pro­duc­tion com­pa­nies.

“The rea­son for the pull­back has largely been be­cause the eco­nomic con­di­tions have yet to change, mean­ing there re­mains a sup­ply sur­plus of a re­ported 2 mln bpd and un­til this is sig­nif­i­cantly al­tered, the chances of a re­cover in price will be very low,” said Jameel Ahmad, Chief Mar­ket An­a­lyst at Li­mas­sol-based FXTM.

“Op­ti­mism in the global eco­nomic re­cov­ery is also con­tin­u­ally be­ing knocked back and this not com­pli­ment­ing any sug­ges­tions that the weaker price will be pos­i­tive for de­mand. In fact, it is hav­ing the op­po­site im­pact,” he added.

“Over­all, if we con­tinue to re­ceive eco­nomic down­grades that lead to sus­pi­cions of weaker de­mand for the com­mod­ity and fail to see any in­di­ca­tions of re­duced pro­duc­tion, it’s more likely that we will be at risk to record­ing new lows in the oil mar­kets be­fore even con­sid­er­ing a sta­bil­i­sa­tion in prices,” Ahmad said.

“Global stocks are mainly point­ing to the up­side with this be­ing due to a com­bi­na­tion of the overnight China GDP re­lease en­coun­ter­ing a largely pos­i­tive mar­ket re­ac­tion, along­side Euro­pean stocks con­tin­u­ing to rally on the hopes that the Euro­pean Cen­tral Bank (ECB) will in­tro­duce QE this Thurs­day,” he con­cluded.

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