Oil edges up but not likely to stay there due to poor China growth
China’s slowest annual growth rate in 29 years weighs on oil prices, as does Opec supply being expected to outweigh demand
London — Oil prices edged higher on Friday but were set to end the week broadly steady as sluggish economic growth in China, the world’s biggest crude importer, raised concerns about fuel demand and countered optimism from the signing of a China-US trade deal.
The Chinese economy, the world’s second-largest, grew by 6.1% in 2019, its slowest expansion in 29 years, government data showed on Friday.
“A fourth-quarter China GDP rate [of 6%] provided little clue for oil price trading on Friday morning, and mounting downward economic pressure will perhaps limit oil’s upside in the mid- to long term,” said Margaret Yang, market analyst at CMC Markets.
Brent crude futures were up 44c at $65.06 by 10.14am GMT. US West Texas Intermediate (WTI) futures were up 35c at $58.87 a barrel.
Oil rose on Thursday after China and the US signed the first phase of their trade accord. The mood was further boosted after the US Senate approved changes to the US-Mexico-Canada Free Trade Agreement (USMCA).
Surging Chinese demand as seen in refinery throughput figures offset the less positive economic growth data. In 2019, Chinese refineries processed 651.98-million tonnes of crude oil, equal to a record high 13.04-million barrels per day (bpd), and up 7.6% from 2018, government data showed. Throughput also set a monthly record for December.
“The increase in China’s refinery capacity is reshaping the trade flows of refined products, while the increase in US crude oil production is reshaping the trade flows of crude oil,” Olivier Jakob of consultancy PetroMatrix said.
Forecasts by two major agencies of a surplus in supplies this year also weighed on prices.
The International Energy Agency (IEA) offered a bearish view of the oil market outlook for 2020 on Thursday. Oil cartel Opec supply will exceed demand for its crude, the IEA forecast, even if Opec member states comply fully with output cuts agreed with Russia and other producers (Opec+).
The IEA view is somewhat reflected by Opec’s own view which found non-Opec supply this year growing by more than overall demand.
“If global oil demand continues at last year’s weaker-than-normal 1% growth rate in 2020 and 2021 too, then Opec and Opec+ might be forced to switch strategy to ‘volume over price’ once again,” Commerzbank said.
Opec+ has been curbing oil output since 2017 to balance supply and demand and support prices.