Boats float in front of the Vopak oil storage terminal in Johor, Malaysia. Picture: REUTERS/HENNING GLOYSTEIN
Boats float in front of the Vopak oil storage terminal in Johor, Malaysia. Picture: REUTERS/HENNING GLOYSTEIN

Singapore — Oil prices slumped by about 2% on Wednesday, pulled down by swelling US inventories and a plunge in global stock markets as China’s government warned of increasing economic headwinds.

International Brent crude oil futures were at $60.87 a barrel at 4.18am GMT, down $1.21, or 2%, from their last close.

US West Texas Intermediate (WTI) crude futures were at $52.31 a barrel, down 95c, or 1.8%.

Reuters technical commodity analyst Wang Tao said WTI could soon test support at $51.75 a barrel, while Brent was threatening to drop below $60 a barrel again soon.

Oil prices were pressured by a weekly report from the American Petroleum Institute (API) that said US crude inventories rose by 5.4-million barrels in the week to November 30, to 448-million barrels, in a sign that US oil markets are in a growing glut.

Official US government oil production and inventory data is due later on Wednesday.

More broadly, the slide in US oil followed a tumble in global stock markets on Tuesday, with investors worried about the threat of a widespread economic slowdown.

Key to the global economic outlook will be whether the US and China can resolve their trade disputes. Washington and Beijing announced a 90-day truce last weekend, during which neither side will further increase punitive import tariffs.

But US President Donald Trump threatened on Tuesday to place “major tariffs” on Chinese goods imported into the US if his administration did not reach a desirable deal with Beijing.

In an unusual move, China’s state council on Wednesday issued guidance to support employment as the economy slows, saying the country should pay “high attention” to the effect on employment from increasing economic headwinds.

Bank of America Merrill Lynch said in its 2019 economic outlook, published on Tuesday, that “most major economies are likely to see decelerating activity”, although it added that “a steady stream of monetary and fiscal stimulus measures” was expected to stem the slowdown.

The bank said it expected Brent and WTI prices to average $70 and $59 a barrel respectively in 2019.

Brent and WTI have averaged $72.80 and $66.10 a barrel so far in 2018.

Reuters