Chinese growth fears throw oil gains into reverse

An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia, on Wednesday, Oct. 3, 2018.
An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia, on Wednesday, Oct. 3, 2018.

Oil retreated from a two-week high as risk appetite faltered after a revival of investor fears over the health of the global economy.

Futures in New York decreased 2.1 percent, paring most of the previous session’s gains spurred by signs that OPEC got an early start on its pledged output curbs. Crude’s dropping with other risk assets after Apple Inc. cited an unforeseen slowdown in China and cut its sales outlook. Shares of the iPhone maker as well as its suppliers slid with U.S. stock index futures. Additionally, data this week showed weakening factory conditions across Asia.

Apple’s forecast cut is the latest sign that a long-running trade war between the U.S. and China may be hurting the world’s two biggest economies. Along with political turmoil in Washington and higher interest rates by global central banks, the spat has weighed on crude. While OPEC’s output plunged by the most in almost two years last month, investors remain wary over the effectiveness of the group’s strategy as America pumps at a record pace.

“Commodities including oil are getting hammered on signs of slowing growth in China after the release of weak economic data as well as Apple’s lowered revenue outlook,” said Sungchil Will Yun, a commodities analyst at HI Investment & Futures Corp. “While OPEC is said to have reduced output last month, concerns over growth have outweighed everything.”

West Texas Intermediate for February delivery dropped as much as 2.5 percent to $45.39 a barrel on the New York Mercantile Exchange, and was at $45.57 at 2:58 p.m. in Seoul. The contract settled $1.13 higher at $46.54 on Wednesday. Total volume traded was about 85 percent above the 100-day average.

Brent for March settlement was 66 cents lower at $54.25 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude climbed 2.1 percent to $54.91 on Wednesday. It traded at a premium of $8.37 to March WTI.

On Wednesday, Chinese manufacturing numbers — signaling contraction for the first time since mid-2017 — torpedoed investor optimism on the first full day of trading in 2019. That’s after global stocks had their worst December rout since 2008 on concerns the U.S. Federal Reserve’s tighter monetary policy will weigh on growth. Meanwhile, parts of the American government remained shut as congressional leaders failed to strike a deal with President Donald Trump.

In a sign of urgency felt by producers to stall the slide in crude prices, Saudi Arabia throttled back production a month before wider supply curbs pledged by the Organization of Petroleum Exporting Countries and its allies start. The kingdom’s cutbacks reduced the group’s overall output by 530,000 barrels a day in December, the sharpest pullback since January 2017.

Other oil-market news: Venezuela, once Latin America’s largest oil exporter, ended 2018 with a whimper as overseas sales dropped to the lowest in nearly three decades. American drivers are likely to pay a little less for gas this year and Trump is happy to take credit. The projected $2.70 a gallon pump price for 2019 is 3 cents lower than 2018 levels, although this year’s high could reach $3 as soon as May and top $4 in some cities, according to GasBuddy’s Price Fuel Outlook.

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