Oil falls on China concerns, set for weekly drop on Opec doubts
New York — Oil prices fell on Friday and were on track to end the week lower on lingering doubts over the extent of Organization of the Petroleum Exporting Countries (Opec) cuts, with sentiment worsened by concerns over the economic health of the world’s second-largest oil consumer China after it reported the steepest falls in overall exports since 2009.
Record Chinese crude imports of 8.6-million barrels per day (bpd) in December helped to buoy prices somewhat, traders said, but they could not hide underlying fears over the overall health of the world’s second-biggest economy.
Despite China’s oil thirst, overall exports — the country’s economic backbone — declined by 7.7% last year in what was the second annual decline in a row and the worst since the depths of the global crisis in 2009.
Brent crude futures were trading 31c lower at $55.70 a barrel by 3.28pm GMT and were on track for a weekly loss of 2.5%. US West Texas Intermediate crude futures fell by 41c to $52.60, set for a weekly drop of 2.6%. Exports of Chinese refined oil products last month rose nearly 25% year-on-year to a record 5.4-million tonnes, well above November’s previous record of 4.9-million tonnes.
"China right now seems more interested in keeping capital in the country than focusing on growth overall," Phil Flynn, analyst at Price Futures Group in Chicago said.
"We have to watch this situation develop because this is one threat to what is an otherwise wildly bullish scenario for oil in the coming year." On the supply side, there was some market support from top crude exporter Saudi Arabia, which said that its output had fallen below 10 million bpd to levels last seen in February 2015 and that it expects to make even deeper cuts next month.
However, hard evidence of export reductions has yet to emerge, two weeks into the month in which the cuts by Opec and other producers, such as Russia, were supposed to start. Many analysts expect compliance of 50% to 80% at best.
"As the Saudis hint at even deeper reductions in February, assumptions are rife that its enthusiastic approach to output cuts is an admission that cheating is expected on the part of other producers," said Stephen Brennock of oil brokerage PVM.
The US Energy Information Administration said in its January outlook that it expects Brent and WTI to average $53 and $52 a barrel respectively in 2017.
Even if Opec cuts its output as agreed, traders said that rising US shale output and increasing supply from Opec members Nigeria and Libya, which were exempt from the pact, might offset any reductions.
The market also awaited US drilling rig count data from energy services firm Baker Hughes Inc at 6pm GMT, the indicator future US production.