Rising uncertainties about a global oil oversupply pulled crude futures downwards in Asian trading today, but positive Chinese growth domestic product (GDP) data put a ceiling on the losses.
Brent crude futures fell to $46.86 a barrel, down 51 cents from its last value on the ICE Futures Exchange. Meanwhile, US West Texas Intermediate (WTI) futures tumbled to $45.21 a barrel after having previously declined to $45.05.
Besides the surplus worries, crude prices were also dragged by a stronger dollar. Wall Street Journal Dollar Index reported that the greenback was last up 4 cents, at 86.88.
Global Oil Glut Concerns
Traders locked in on gains after the overnight surge as pressure from market unease brought fears that global glut is clearing slower than expected. The International Energy Agency (IEA) and the US official energy think tank published this report this week.
In a research note, BNP Paribas said that: “Changes to our oil balances and OPEC crude oil production assumptions continue to show that very little implied global stock change will occur from Q3 2016 until the end of 2017.”
BNP added that the stockpile overhang established from 2014’s beginning will stay in place, and that continues to symbolize a hindrance to any price rally.
IEA reported that global oil supply rose by 600,000 barrels a day to 96 million barrels a day in June in its newest oil report, but cautioned that “the existence of very high oil stocks is a threat to the recent stability of oil prices.”
The agency further noted that in just the first quarter, global refinery run growth beat refined product demand growth by 60%, which places the world drowning in excess fuel.
Thursday’s data from Genscape, a market intelligence firm, presented a 171,511-barrel build at the Cushing, Oklahoma delivery hub for WTI futures during the week to July 12, according to traders.
China’s Q2 GDP Growth
Better-than-expected Chinese growth erased losses in crude on Friday. Second quarter growth hovered steady at 6.7%, as record stimulus during the first quarter lent momentary stability to a sinking economy. Government also initiated to stabilize growth in the country.
Reports on China’s GDP came in above predications after the previous data had presented an overall weaker data in manufacturing, exports and private investment. The latest report was likely to alleviate pressure on Beijing to bring out more instant stimulus measures, which were ineffective in reversing the slump.
Wall Street Journal polled 16 economists and yielded that prediction of China’s 6.6% GDP growth in the April-June months.
The National Bureau of Statistics also estimated that industrial output inched up 6.2% in June from a year earlier while fixed-asset investment rose 9.0% YoY for the January-June period. Retail sales increased 10.6% in June from a year earlier. The industrial-production and retail figures were better than expected while the investment figure fell below expectation.
China’s central bank has also flooded funds through the financial system, ramped up infrastructure spending and cut red tape and corporate taxes. The Finance ministry also said that government spending grew 19.9% YoY in June.
“This shows the economy is basically stable,” stated Standard Chartered Bank Ltd economist Ding Shuang, and added the government is set on attaining its growth target for 2016 of 6.5% to 7%.
Nonetheless, while unease of a hard landing in China have soothed, investors are worried that a further slowdown and any major fallout from Brexit would place the world in an exposed position to global recession.