Crude plunges on weak economic data, U.S. crude build

Andrew Cummings
August 17, 2019

European equity markets fell again today to extend losses from the previous session as weak data from Germany and China coupled with an inverted USA bond yield curve ramped up fears of a global recession.

In the previous week ending August 2, API reported a decrease of 3.4 million barrels of crude oil inventories, while the U.S. Energy Information Administration (EIA) reported a buildup of 2.39 million barrels for the same period.

Brent crude was down $1.81, or three per cent, at $59.49 a barrel at 1323 GMT, after rising 4.7 per cent on Tuesday, the biggest percentage gain in a day since December according to Reuters.

"This morning's Chinese industrial production came in below expectations confirming our expectation that the late-cycle dent likely becomes deeper before year end", Norbert Ruecker of Swiss bank Julius Baer said, referring to the late-cycle phase in economies that is characterised by slowing growth.

That news drove crude oil prices sharply higher so counter-measures by China could weigh even further on crude prices throughout the day.

The price of Brent is still up 10% this year thanks to supply cuts led by the Organization of the Petroleum Exporting Countries and allies such as Russian Federation, a group known as OPEC+.

Nevertheless, some were hopeful that oil cartel OPEC could step in to support prices if crude continues to decline.

A second week of unexpected rises in USA crude inventories is adding to the pressure.

China's commerce ministry said in a statement on Tuesday that US and Chinese trade officials spoke on the phone and agreed to talk again within two weeks.

The global economic slowdown, amplified by tariff conflicts and uncertainty over Brexit, is also hitting European economies.

Recession fears were raised on Wednesday after the bond market flashed a troubling signal about the USA economy.

"The market is becoming very anxious about global growth", said Tamas Varga of oil broker PVM.

Both reports underlined the widening economic cracks as the trade war between the United States and China intensifies. A slump in exports sent Germany's economy into reverse in the second quarter, data showed.

Meanwhile, a second week of unexpected rises in USA crude inventories is adding to the pressure.

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), last week said it planned to keep its crude exports below 7 million bpd in August and September to help drain global oil inventories.

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