China’s Slow Economic Growth Limits the Upside of Crude Oil Prices

Crude oil plunged on Friday to reduce the surge in crude oil weekly rise, as oil traders and investors weighed improving supply fundamentals against doubts surrounding China’s economic rise

Crude oil futures in New York plunged about 2% Friday but had produced a 13% increase for the week.

Major Crude oil producers continue to reduce the production of crude oil. U.S. explorers laid down another 21 oil rigs, bringing the total to the lowest since 2009.

However China skipped its economic growth target for 2020 due to “great uncertainty” over the COVID-19 pandemic, raising concerns over China’s demand recovery.

“We are starting to see some gradual improvements in the global economy, notwithstanding China, and it’s going to get better from here,” said Bill O’Grady, chief market strategist at Confluence Investment Management LLC in an interview to Bloomberg News. “So, we’ve gone from being undervalued due to fears of the lack of inventory capacity to now being about where we ought to be based on where inventories are.”

“However, there are still warning signs that any recovery will be long and slow. The research unit of state-owned China National Petroleum Corp. said fuel demand in the country will drop by 5% this year. Plus, U.S. oil production shut-ins have peaked,”Mark Rossano, an analyst with consultancy Primary Vision said in a note to Bloomberg News.

Yet, Crude oil output cuts by major producers have helped reduced the oil glut at the time that OPEC+( a group comprising of OPEC, Russia and other oil producing countries committed to the alliance) works to implement its pledged oil production cuts.

OPEC+ program this May is on the way to reduce about 9.7 million barrels of daily crude oil output – roughly about 10% of the world’s supplies.

Written by Paul Schwab