SYDNEY, 22 Jan 2019:
Oil prices fell today as signs of a spreading global economic slowdown stoked concerns over future fuel demand.
China’s state planner today warned the downward pressure on the economy will affect China’s job market as falling factory orders point to a further drop in activity in coming months and more job shedding. China yesterday reported its lowest annual economic growth since 1990.
“Slowing manufacturing activity in China is likely weighing on demand,” said Singapore-based tanker brokerage Eastport, adding that industrial slowdowns tended to be leading indicators that fed gradually into lower demand for shipped oil products.
In a sign of spreading economic weakness, South Korea’s export-oriented economy slowed to a six-year low growth rate of 2.7% in 2018, official data showed today.
This came after the International Monetary Fund on Monday trimmed its 2019 global growth forecast to 3.5%, down from 3.7% in last October’s outlook.
“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” said IMF managing director Christine Lagarde.
Despite the darkening outlook, oil prices have been getting some support from supply cuts started in late 2018 by the Organisation of the Petroleum Exporting Countries (OPEC).
“The effects of OPEC-led cuts … will undoubtedly place a price floor under crude oil,” said Singapore-based brokerage Phillip Futures today.
Big China factor
Amid increasing signs of China’s industrial slowdown in 2019, data this week showing record oil and natural gas imports likely indicates a country at peak energy growth, with its thirst set to wane as the slowdown bites.
China’s record intake for both crude oil and liquefied natural gas (LNG) in 2018 cemented its status as the world’s largest oil and second-largest LNG importer.
But heading into this year, China’s trade war with the US is taking a toll.
“Trade war concerns have reduced global growth expectations and with it comes a lower demand of energy,” said Alfonso Esparza, senior market analyst at futures brokerage Oanda.
Bank of America Merrill Lynch said this week it expected “a significant slowing in growth” in both China’s economy and energy demand for 2019.
Few analysts expect an outright recession in China this year, but amid signs of slowing factory activity that began impacting natural gas demand in the fourth quarter of 2018, the data points toward a slowdown.
LNG tanker shipments into China are set to be just over 5 million tonnes in January, down from a record 6.4 million tonnes in December, Refinitiv ship tracking data showed – limited by not only warmer-than-usual winter temperatures but also slipping industrial demand.
The January shipments would be the lowest in a year despite China’s programme to move millions of households and factories from using polluting coal to cleaner natural gas.
“Economic slowdown (and) a more considered approach on coal-to-gas switching … will mean LNG demand will slow in 2019,” energy consultancy Wood Mackenzie said in a note this month, although it added that China’s LNG imports would “still grow at around 20%, by far the largest source of LNG demand growth in the global market.”
China’s crude imports by tanker look set to peak in January, breaking over 10 million barrels per day for the first time, according to Refinitiv data. But that masks signs of slowing demand growth for both transportation and industrial fuels, according to analysts.
China’s car sales fell for the first time in more than two decades in 2018, the country’s top auto industry association said this month, dropping by 2.8% from a year earlier.
Property investment growth in December slowed to the second-slowest rate for 2018. Real estate is a key Chinese economic driver and construction is the source of much of the country’s diesel demand.
China National Petroleum Corp this week said it expected diesel demand to fall by 1.1% in 2019. That would likely be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.
Some of China’s record crude oil imports were used to fill up strategic reserves, including at new storage sites in Jinzhou in the north and Huizhou on China’s southern coast – meaning they did not reflect actual end-user demand.
Additionally, independent refiners increased their overseas orders at the end of the year to use up their annual import quotas received from the government for 2018.
But that meant they produced more fuel than even thirsty China can absorb – triggering record exports of refined products as refiners offloaded surplus fuel.
To contain the glut, the government has cut back import quota for independent refiners, while it may further raise fuel export quotas.
“Fuel exports will hit another record this year,” said Seng-Yick Tee, oil analyst with Beijing-based consultancy SIA Energy.
– Reuters