SINGAPORE: Oil fell on Wednesday as a swelling supply glut and signs of an economic slowdown weighed on crude prices a day ahead of an OPEC meeting at which the producer club is expected to decide supply cuts.
International Brent crude oil futures were at US$61.16 per barrel at 0757 GMT, down 92 cents, or 1.5%, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were at US$52.40 per barrel, down 85 cents, or 1.6%.
Oil prices were pressured by a weekly report from the American Petroleum Institute (API) that said US crude inventories rose by 5.4 million barrels in the week to Nov 30, to 448 million barrels, in a sign that US oil markets are in a growing glut.
Official US government oil production and inventory data is due later on Wednesday.
In the Middle East, Saudi Arabia produced a record 11.3 million barrels per day (bpd) in November, adding to the swelling glut.
The supply overhang will be the focus of a meeting of the Organisation of the Petroleum Exporting Countries (OPEC) on Thursday, at which the producer group is expected to decide some form of supply cut aimed at supporting crude prices.
In the latest sign of a clogged market, Asian gasoline refining margins have plunged to their weakest levels in seven years – so low that churning out this key motor fuel has become a loss-making business.
The slide in US oil followed a tumble in global stock markets on Tuesday and Wednesday, with investors worried about the threat of a widespread economic slowdown.
Key to the global economic outlook will be whether the United States and China can resolve their trade disputes. Washington and Beijing announced a 90-day truce last weekend, during which neither side will further increase punitive import tariffs.
In a sign of easing tensions between the world’s two biggest economies, Chinese oil trader Unipec plans to resume US crude shipments to China by March after the Xi-Trump deal at the G20 meeting reduced the risk of tariffs being imposed on these imports, people with knowledge of the matter said.
Yet the truce may not last. US President Donald Trump threatened on Tuesday to place “major tariffs” on Chinese goods imported into the United States if his administration didn’t reach a desirable deal with Beijing.
China’s state council on Wednesday issued guidance to support employment as the economy slows, saying the country should pay “high attention” to the impact on employment from increasing economic headwinds.
Bank of America Merrill Lynch said in its 2019 economic outlook, published on Tuesday, that “most major economies are likely to see decelerating activity”, although it added that “a steady stream of monetary and fiscal stimulus measures” was expected to stem the slowdown.
In Asian powerhouse Japan, the economy is expected to have contracted more again in the third quarter, with the slowdown deepening, a poll showed on Wednesday, with Q3 annualised GDP expected to fall by 1.9%.
A slowing economy may further undermine oil prices.
Bank of America said it expected Brent and WTI prices to average $70 and $59 per barrel respectively in 2019.
Brent and WTI have averaged US$72.80 and US$66.10 per barrel so far this year.