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Oil falls on slowing global growth outlook

SINGAPORE, September 28, 2015

Oil prices dropped in Asian trading hours on Monday despite a fall in US drilling activity for the fourth straight week, with analysts pointing to a poor economic growth outlook as the main reason for low crude prices.

China's August industrial profits dropped 8.8 per cent from the same month last year, and January to August industry profits were down 1.9 per cent.

"The growth problem endures. Asia isn't about to bounce," said Frederic Neumann, co-head of Asia Economics Research at HSBC in Hong Kong on Monday in a note to clients.

The International Monetary Fund (IMF) is likely to revise downwards its estimates for global economic growth due to slower growth in emerging economies, IMF head Christine Lagarde said in a newspaper interview.

Brent crude futures LCOc1 were at $48.18 per barrel at 2323 EDT, down 42 cents. US West Texas Intermediate (WTI) futures CLc1 were 39 cents lower at $45.31 a barrel. Crude futures are now down more than 10 per cent since the end of August.

Monday's price falls came despite an ongoing reduction in US drilling activity.

US energy companies cut oil rigs for a fourth week in a row last week, a sign continued weak prices were causing oil and gas producers to reduce drilling plans.

Yet analysts said US oil output was holding up despite the lower drilling.

"A rapid draw-down of the observed backlog of uncompleted wells could lead to higher production later this year and in 2016," Goldman Sachs said.

Analysts said US output data would likely be the main driver this week for oil prices, especially as Chinese trading slows ahead of its seven-day National Day holiday that starts on Oct. 1.

The US Energy Information Administration is due to release its monthly petroleum supply report on Wednesday. [EIA/S]

"We expect there to be laser-focus on US production figures ... Signs that US production rolled (fell) could provide a boost to both WTI and Brent flat prices," Morgan Stanley said.

Jefferies bank said that oversupply in oil markets had halved since the second quarter to around 1 million barrels per day, and that the falling prices since June 2014 were impacting production.

"The price signal is working. US production is past its inflection and declines are accelerating ... (and) non-OPEC supply outside the US is also beginning to show the effects of lower investment that arises from lower oil prices," Jefferies said. – Reuters




Tags: oil price | Global economy | Brent Crude |

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