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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.
