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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.
IMF growth forecast
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 were down almost 1 per cent or 45 cents, at $48.15 per barrel at 0334 GMT. US West Texas Intermediate (WTI) futures were also about 1 per cent lower or 43 cents at $45.27 a barrel.
Crude futures are now down more than 10 per cent since the end of August. Ratings agency S&P had cut its Brent and WTI forecasts for this year last week by $5 to $50 per barrel and $45 per barrel, respectively, and said it saw 2016 prices at $55 for Brent and $50 for WTI.
US drilling activity
Monday’s price falls came despite an ongoing reduction in US drilling activity.
US energy companies had 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 of oil prices, especially as Chinese trading slows ahead of its seven-day National Day holiday that starts on October 1.
Petroleum supply report
The US Energy Information Administration is due to release its monthly petroleum supply report on Wednesday.
“We expect there to be laser-focus on US production figures. Even though the data is lagged, signs that U.S. production rolled (fell) could provide a boost to both WTI and Brent flat price,’’ Morgan Stanley said.
The bank said the global oversupply of crude markets — estimated by some to be as much as 2.5 million barrels per day (bpd) — was likely over estimated.
“We continue to find a 2+ million bpd oversupply scenario highly unlikely given the state of physical markets,” Morgan Stanley said, adding that it saw strong demand in China despite its economic weakness.
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