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Oil prices fell more than 1 percent on Tuesday as the slowdown in the world's second largest economy reinforced worries over global expansion and future fuel demand.

Brent oil futures shed 1.5 percent to $61.76 per barrel, while US West Texas Intermediate (WTI) futures slipped 1.5 percent $53.23 per barrel.

Global Growth Headwind

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Faltering global economic data were seen as a headwind for oil prices. China’s state planner warned on Tuesday that the deceleration in economic expansion will hit the country’s job market as declining factory orders indicated further weakening in activity in the coming months and more job cuts.  

China reported on Monday that its 2018 gross domestic product (GDP) growth slipped to a 28-year low, although it was in line with expectations and reflected a normal part of the economic cycle.

Slowing manufacturing activity in China is likely weighing on demand, said a Singapore-based tanker brokerage firm, adding that industrial slowdown tended to be leading indicators that fed gradually into lower demand for shipped oil products.

So far, China’s oil imports have survived the economic deceleration, registering more than 10 million barrels per day (bpd) late last year. However, several analysts see the country close to the edge of energy growth, with its thirst due to lessen as the slowdown kicks in. 

Still, the output cuts by the Organization of the Petroleum Exporting Countries (OPEC), which began in 2018, have helped prop oil prices up amid the darkening growth outlook.

The effects of OPEC-led cuts will undoubtedly place a price floor under crude oil, according to a Singaporean brokerage group.  

The economic weakness has also spread to South Korea, as official data showed on Tuesday that its export-oriented economy contracted to a six-year low of 2.7 percent last year.

With economic expansion and oil demand growth being highly correlated, the International Monetary Fund (IMF) on Monday downgraded its forecast for world economic growth this year.

IMF now expects global expansion of 3.5 percent for 2019 from 3.7 percent estimated in October, while 2020 growth forecast was trimmed to 3.6 percent.

The fund cited heightened trade tensions between the world’s two largest economies, rising US interest rates, and a no deal Brexit as reasons for the revisions.

For IMF, the slowdown does not mean a global recession is around the corner, but IMF Managing Director Christine Lagarde stated that the risk of a sharper declined in global growth has certainly increased.    

Chief Market Strategist Hussein Sayed stated that this was the second downturn revision in three months, and they can still see further downgrades in the near future if trade tensions escalate, the UK leaves without a deal with the European Union (EU), or China’s economic growth drops more sharply.

IMF’s forecasts adjustment helped lift the safe-haven gold on Tuesday, with gold futures adding 0.07 percent to $1,283.45 per ounce after stumbling $1,276.80 on Monday to mark their lowest in 2019 so far.

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