By Henning Gloystein
SINGAPORE (Reuters) – Oil prices dropped on Monday after China and South Korea posted surprisingly weak economic data, while fading prospects for a coordinated production cut by leading crude exporters also dragged on the market.
Economic data from China, showing its manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, added to worries about demand from the world’s top energy consumer at a time when the market is already weighed down by a supply overhang.
Numbers coming out of South Korea were also gloomy, with the country’s exports down at levels last seen at the height of the global financial crisis in 2009.
Reflecting an accelerating slowdown in Asia’s biggest economies, front-month Brent crude was down 56 cents at $ 35.43 per barrel at 0507 GMT. U.S. West Texas Intermediate was down 42 cents at $ 33.20 a barrel.
Oil prices came under further pressure because of the dim prospects of a coordinated cut in production by leading exporters like the Organization of the Petroleum Exporting Countries (OPEC) and Russia due to their differences.
“We do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists’ forecast,” Goldman Sachs said.
Also, OPEC-member Iran, which last month was allowed to fully return to markets after years of sanctions, is not willing to participate in any cuts.
In part because of Iran’s return, OPEC oil production has jumped to 32.60 million barrels per day (bpd), its highest in years. This has added to a global glut of over 1 million bpd in excess of demand, which has pulled down oil prices around 70 percent since mid-2014.
Because of the oversupply, analysts at BMI Research said they had reduced their oil price outlook: “We have downgraded our 2016 Brent forecast to $ 40 per barrel from $ 42.5 previously.” They expect WTI to average $ 39.50 this year.
“Counteracting oil’s upside momentum in 2016 will be the weakness of the Chinese yuan, lingering concerns over global economic growth and the well-stocked inventories of crude and fuels,” BMI said, adding that a gradual price rise was expected in the second half of the year.
A belief in higher prices towards the end of the year also shows in the price curve, with Brent for April 2017 delivery $ 7.8 per barrel above those for April this year, up from a premium of just $ 5.7 for this time spread on Nov. 1.
(Editing by Joseph Radford and Himani Sarkar)
