Oil prices take a hit on ECB's warning of continued weakness

Singapore

OIL prices fell 1.6 per cent on Friday on a worsening global economic outlook after the European Central Bank (ECB) warned of continued weakness and fresh data showed Chinese imports and exports slumped last month.

With surging US oil supply unsettling markets, international benchmark Brent crude futures lost US$1.08 or 1.6 per cent to US$65.22 a barrel at 0945 GMT. US West Texas Intermediate crude futures fell 78 cents, or 1.4 per cent, at US$55.88.

Financial markets, including crude oil futures, reacted on Thursday after ECB President Mario Draghi said the European economy was in "a period of continued weakness and pervasive uncertainty".

Asia's growth is also slowing. So far oil demand has held up, especially in China, where imports of crude remain above 10 million barrels per day (bpd). But a slowdown in growth is likely to dent fuel demand and pressure prices at some point.

China's dollar-denominated February exports fell 21 per cent from a year earlier, representing the biggest drop in three years and far worse than analysts had expected, while imports dropped 5.2 per cent, official data showed on Friday.

On the supply side, crude oil has been receiving support this year from output cuts led by the Organization of the Petroleum Exporting Countries (Opec).

But these efforts are being undermined by soaring US crude oil production, which has risen by over two million bpd since early 2018 to a 12.1 million bpd.

Investment bank Jefferies on Friday said that US output growth was largely being fuelled by onshore shale production, which recently benefited from investments by Exxon Mobil and Chevron.

"The majors bring scale, steady capital investment and science to the play," the US bank said, adding that this could lead to a higher growth trajectory and cap the upside oil prices.

US crude exports have also been chasing records, reaching 3.6 million bpd in February - more than the production of Opec members such as the United Arab Emirates, Kuwait and Iran.

The consultancy Rystad Energy said: "The United States will soon export more oil and liquids than Saudi Arabia." Liquids include non-crude oil products such as natural gas liquids (NGLs).

"The (Saudi) kingdom exports some seven million bpd of crude oil plus about two million bpd of NGLs and petroleum products, compared with the US now exporting about three million bpd of crude oil and five million barrels of NGLs and petroleum products," Rystad said.

It said this export surge would have huge benefits for the US economy. Rystad partner Per Magnus Nysveen said: "US oil production ... will grow by close to another one million bpd in 2019. The US trade deficit will evaporate and its foreign debt will be paid quickly, thanks to the swift rise of American oil and gas net exports," said Rystad partner Per Magnus Nysveen. REUTERS