Traders are betting less on crude oil, this has pulled down oil futures as the United States of America and China’s long-awaited trade deal continues to delay amid rising inventories and slowing growth among the world’s biggest economies.
Brent crude, the global benchmark, was down 16 cents, or 0.3 percent, at $62.13 a barrel on Friday after gaining 0.9 percent in the previous session. US West Texas Intermediate (WTI) crude was down 23 cents, or 0.4 percent, at $56.92 a barrel.
Third-quarter results show big economies are contracting, which means slowing global economic growth and lower demand for oil. Gross domestic product (GDP) in China, the world’s biggest importer of crude oil, expanded by 6 percent in the third quarter, the weakest growth rate in roughly three decades.
A slower economic growth rate in China means demand for oil will also decrease, dragging oil prices down with it. A scenario that means Nigeria, Africa’s biggest exporter of crude oil may experience a sharp drop in its foreign exchange earnings and will consequently have limited capacity to continue defending the naira.
Signs of slowing economic growth are also showing up in Germany, Europe’s biggest economy, and in the United States of America, the world’s largest economy. In Germany, the manufacturing sector seems to be stuck in negative territory. The IHS Markit/BME Germany Manufacturing purchasing managers index (PMI) showed a slight uptick in October to 41.9, up from 41.7 in September, but below market expectations of 42. Anything below 50 is considered a contraction in activity. The number for September was the worst reading since the financial crisis.
“Hopes of a return to growth in Germany in the final quarter have been somewhat dashed,” Phil Smith, an economist at IHS Markit, which produced the PMI data, told Bloomberg.
In the US, business equipment declined for a second consecutive month in September. Caterpillar made news when it reported disappointing third-quarter figures and cut its full-year profit forecast. The equipment manufacturer is viewed as somewhat of a proxy for industrial activity. Caterpillar said that its earnings would take a hit as major companies hold off on equipment purchases due to concerns about the health of the global economy.
“Even if growth in these big economies were not contracting, Nigeria sits on a ticking time bomb and needs to aggressively diversify its economy by investing in gas production and monetisation, agriculture and manufacturing,” Ayodele Oni, energy partner at Bloomfield Legal Practice, told BusinessDay. “The government has to be deliberate about supporting local manufacturers such as Innoson Motors just as South Korea has done with Hyundai and Kia, the private sector will in turn pay taxes.”
The trade war between the world’s two biggest economies has slowed economic growth around the world and prompted analysts to lower forecasts for oil demand, raising concerns that a supply glut could develop in 2020.
On Thursday, the Chinese commerce ministry said the two countries had agreed in the past two weeks to cancel trade tariffs in different phases, without giving a timeline.
But that comment was shrouded in doubt soon after when Reuters reported that the plan faces stiff internal opposition in the US administration.
“Oil is in pause mode as traders await more details on the trade talks,” said Stephen Innes, Asia Pacific market strategist at AxiTrader.
US crude oil stockpiles rose sharply in the week ending 8 November, as refineries cut output and exports dropped, while refined products extended a multi-week drawdown, the Energy Information Administration said on Wednesday.
