Oil prices drop as Chinese slowdown adds to oversupply

Goldman Sachs is predicting that oil could hit $20 a barrel

GN Bureau | January 11, 2016



As if the oil glut led price fall is not enough, crude oil prices fell over 2% today as China's economic slowdown dented the outlook for demand and traders are placing record bets on even lower prices.

Global benchmark Brent was down 89 cents, almost over 2.6%, to $32.66 per barrel at 0319 GMT, and US West Texas Intermediate (WTI) crude was down about 2.3% to $32.39.

Today’s decline adds to last week's more than 10% drop in both Brent and WTI prices to start the year. Traders and investors have wondered how long and deep the slide may go with Goldman Sachs saying oil could hit $20 a barrel.

Oil prices have already fallen over 70% since the downturn began in mid-2014 as soaring global production sees hundreds of thousands of barrels of crude produced every day without a buyer, leaving storage tanks filled to the brim.

Oil market analysts are pointing to China's slowdown, which saw a slide in the yuan and two emergency suspensions in stock trading markets last week, as the main reasons for lower oil and commodity prices.

"China macro trends to remain in the driving seat for commodities," Singapore Exchange (SGX) said today in its 2016 commodity outlook.

"With a slowing domestic economy, mounting deflationary pressures, rising capital outflows, growing credit risks, a continued nationwide anti-corruption drive and rising US interest rates, there is perhaps plenty of scope for volatility to stage a return," SGX said.

"Chinese oil data are finally starting to reflect weak economic activity. Implied oil demand in China contracted 4.9 % (537.3 thousand barrels per day) month-on-month and 2.0 % (216.7 thousand barrels per day) year-on-year in November, the first decline since July 2014," Barclays bank said in a note late on Friday.

"We expect further compression in growth rates this year, with an average of 300 thousand barrels per day (2.7 %)," it added.

Oil market speculators have increased their net-short positions, which would profit from prices falling lower, to a record high in the week to last Tuesday, in a sign that they are losing faith in a price rise anytime soon, a weekly report from a US government agency that tracks commodity markets activity showed on Friday.

At the same time speculators have cut their net-long positions to fewer than 50,000 contracts, or the equivalent of 50 million barrels, according to the trading data. Longs are bets on higher prices, while shorts are wagers that the market will fall. The net position squares off the two.

Oil market speculators have increased their net-short positions, which would profit from prices falling lower, to a record high in the week to last Tuesday, in a sign that they are losing faith in a price rise anytime soon, a weekly report from a US government agency that tracks commodity markets activity showed on Friday.

At the same time speculators have cut their net-long positions to fewer than 50,000 contracts, or the equivalent of 50 million barrels, according to the trading data. Longs are bets on higher prices, while shorts are wagers that the market will fall. The net position squares off the two.

Comments

 

Other News

“Privacy is the foundation of what makes life worth living”

Joseph A Cannataci is the UN’s first and current special rapporteur for the right to privacy appointed by the Human Rights Council (HRC) in July 2015. His appointment came with growing global concerns about threats to privacy in the digital age where governments and big corporations collect

Suicide is all set to be decriminalised

Those who attempt suicide will no longer face criminal charges under the Indian Penal Code (IPC), once the Lok Sabha passes the “The Mental Healthcare Bill”. The government has introduced “The Mental Healthcare Bill”,

Challenges with regulation of medical education: Niti Aayog

  There are challenges with the regulation of medical education for Indian Systems of Medicine and Homoeopathy, said a Niti Aayog report.   A Preliminary Report of the Committee on the Reform of the Indian Medicine Central Council Act 1970 and Homoeopathy Cen

In conversation with author Chitra Banerjee Divakaruni

Chitra Banerjee Divakaruni was born in Kolkata and has spent most of her life in Northern California. The two cultures are reflected in her writings. Two of her books, The Mistress of Spices and Sister of My Heart, have been made into a movie and TV serial, respectively. Palac

Five points about UK parliament resolution on Gilgit-Baltistan

  Here are five highlights of the resolution that was passed by the British parliament over Gilgit-Baltistan in Pakistan.   Read: Resolution in British parliament 

Would AAP do well in the Delhi civic elections?

Would AAP do well in the Delhi civic elections?

Video

गोमती रिवर फ्रंट पहुंचे योगी

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter