28/ Feb’19

Brent crude falls as trade talks drag, China’s economy shows weakness

Brent crude oil on track for strongest first-quarter since 2011

OPIS chief oil analyst Tom Kloza says world demand for oil will be at a slower rate.

Benchmark Brent oil fell on Thursday as U.S.-China trade tensions persisted, the Chinese economy showed signs of slowing and surging U.S. production undermined OPEC-led output curbs.

Brent was down 42 cents, or 0.6 percent, at $65.97 a barrel by 1440 GMT. U.S. West Texas Intermediate (WTI) crude was little changed, just 2 cents higher at $56.96.

Factory activity in China, the world's biggest oil importer, shrank for a third month in February as export orders fell at the fastest pace since the financial crisis a decade ago.

“Further evidence of a slowdown in China hit risk sentiment,” said Jasper Lawler, head of research at futures brokerage London Capital Group.

A Reuters survey of 36 economists and analysts on Thursday indicated growing pessimism about prospects for a significant price rally this year, forecasting Brent would average $66.44 in 2019, slightly lower than the January forecast.

“In the short-term, oil markets are going to be characterized by supply tightness on international markets,” said Emirates NBD's Edward Bell. “Over the rest of 2019, though, the rising oil price sits incongruously with slowing economic growth in major markets.”

U.S. Trade Representative Robert Lighthizer dampened expectations of a swift resolution to the trade dispute between China and the United States after hopes had been raised by reports of progress on key sticking points.

Lighthizer said issues with China were “too serious” to be resolved with promises from Beijing to purchase more U.S. goods and any deal needed to include a way to ensure commitments were met.

Crude prices have also been dragged down by surging U.S. oil production, rising more than 2 million barrels per day (bpd) in the past year to a record 12.1 million bpd.

Supply cuts by the Organization of the Petroleum Exporting Countries and allies such as Russia – a group known as OPEC+ – have offered some support since January.

That reduction helped to drive down U.S. commercial crude inventories by 8.6 million barrels to 445.87 million barrels in the week to Feb. 22.

“Crude imports into the U.S. fell 1.6 million bpd last week, to a two-decade low,” ANZ bank said on Thursday.

(Reporting by Noah Browning in London Additional reporting by Henning Gloystein Editing by Edmund Blair and David Goodman)