Image: A woman pumps gas at a station in Falls Church, Virginia December 16, 2014. REUTERS/Kevin Lamarque
By Henning Gloystein
SINGAPORE (Reuters) – Oil prices dropped early on Monday after China and South Korea posted surprisingly weak economic data and on worries the prospect of a coordinated production cut by leading crude exporters seemed remote.
Front-month Brent crude
Activity in China’s manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations.
The official Purchasing Managers’ Index (PMI) stood at 49.4 in January, compared with the previous month’s reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012, and analysts polled by Reuters had predicted a reading of 49.6.
In South Korea, exports posted an 18.5 percent year-on-year drop to $36.7 billion, down to levels last seen at the height of the global financial crisis in 2009.
The data from China and South Korea are the latest indicators of an accelerating slowdown in Asia’s biggest economies.
At the same time, the prospects of a coordinated cut in production by leading exporters like the Organization of the Petroleum Exporting Countries (OPEC) and Russia seem difficult to realise due to differences between these producers.
Also, OPEC-member Iran, which last month was allowed to fully return to markets after years of sanctions, is not willing to participate in any cuts.
“The lack of political will may hinder prospects for a deal,” ANZ bank said.
In part because of Iran’s return, OPEC oil production has jumped to 32.60 million barrels per day, its highest in years, adding to a global glut that is seeing over 1 million barrels of crude produced every day in excess of demand, pulling down prices around 70 percent since mid-2014.
Because of the oversupply, analysts at BMI Research said on Monday that it had reduced its oil price outlook: “We have downgraded our 2016 Brent forecast to $40 per barrel from $42.5 previously.”
Its expectation for WTI was to average $39.50 per barrel this year.
“Counteracting oil’s upside momentum in 2016 will be the weakness of the Chinese yuan, lingering concerns over global economic growth and the well-stocked inventories of crude and fuels,” BMI said, adding that a gradual price rise was expected in the second half of the year.
(Editing by Richard Pullin and Joseph Radford)
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