Oil Falls a Second Day as IMF Reduces Global Economy Forecast

By Grant Smith

Photographer: Ty Wright/Bloomberg

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Oil declined for a second day as the International Monetary Fund cut its global-growth outlook by the most in three years.
Futures slipped as much as 1.3 percent in London after falling by the most in a week yesterday. The world economy will grow 3.5 percent in 2015, down from the 3.8 percent pace projected in October, the Washington-based IMF said in its quarterly global outlook yesterday. China’s gross domestic product expanded by 7.4 percent in 2014, the slowest rate since 1990, official data showed.
Oil slid more than 50 percent since June as the U.S. pumped at the fastest pace in more than three decades and the Organization of Petroleum Exporting Countries resisted calls to cut output. The IMF’s downgrade, following reduced growth expectations published by the World Bank on Jan. 13, undermines
speculation that lower oil prices would spur economic activity.
“The IMF revision is part of the general growth downgrade we are currently seeing,” Ole Sloth Hansen, an analyst at Saxo Bank A/S, said by e-mail from Copenhagen. “It does indicate that we are going to struggle getting out of the supply glut from increased demand. That leaves the focus squarely on what happens to supply.”

Global Growth

Brent for March settlement fell as much as 63 cents to $48.21 a barrel on the London-based ICE Futures Europe exchange, and traded at $48.35 at 9:12 a.m. local time. The contract declined $1.33 to $48.84 yesterday. Total volume was about 47 percent above the 100-day average for the time of day. The European benchmark crude traded at a premium of 80 cents to West Texas Intermediate, the U.S. marker grade.
WTI for February delivery, which expires today, decreased $1.53 to $47.16 a barrel in electronic trading on the New York Mercantile Exchange, compared with the close of Jan. 16. Floor trading was suspended yesterday for the Martin Luther King Jr. holiday and transactions will be booked with today’s for settlement purposes. The more active March future was down $1.59 at $47.54.
The reduction in the IMF growth forecast was the biggest since January 2012, when it lowered its estimate for expansion that year to 3.3 percent from 4 percent amid forecasts of a recession in Europe.
The fund cut 2015 estimates for the euro area, Japan, China and Latin America. The deepest reductions were in places suffering from crises, such as Russia, or for oil exporters including Saudi Arabia. The U.S. was the exception, with an upgrade to the forecast for the world’s largest economy to 3.6 percent growth in 2015, up from 3.1 percent in October.

China GDP

GDP (CNGDPYOY) in China, the world’s second-biggest oil consumer, rose by 7.3 percent in the three months ended December compared with a year earlier, the National Bureau of Statistics reported in Beijing. That surpassed a median estimate of 7.2 percent in a Bloomberg News survey of 50 economists.
The Asian nation will account for about 11 percent of global oil demand this year, compared with 21 percent for the U.S., projections from the Paris-based International Energy Agency show.
“China’s consumption continues to increase so they have to import more, but this could be more of a short-term boost and investors want to see more consistency,” Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc., said by phone. “Right now, the market is still skeptical.”

Market Decides

In the U.S., where oil production has surged amid a shale boom, the government will let the market “decide what happens” with supply and demand, according to Amos Hochstein, special envoy and coordinator of international affairs at the State Department’s Bureau of Energy Resources. Oil markets “can adjust themselves” without intervention, he said in an interview in Abu Dhabi on Jan. 19.
U.S. production climbed to 9.19 million barrels a day through Jan. 9, the most in weekly records dating back to January 1983, as the country’s development of shale formations continues, according to the Energy Information Administration.
OPEC, which supplies about 40 percent of the world’s crude, maintained its output quota of 30 million barrels a day at a meeting on Nov. 27. The 12-member group pumped 30.2 million a day in December, exceeding its target for a seventh straight month, data compiled by Bloomberg show.
Iran, OPEC’s fourth-largest producer, sees “no threat” even if oil slumps to $25 a barrel and isn’t seeking an emergency meeting of the group, Oil Minister Bijan Namdar Zanganeh told reporters on Jan. 19 at a conference in Tehran, according to the state-run Fars news agency. OPEC is scheduled to meet June 5 in Vienna.