Oil steady on hopes Chinese fiscal stimulus will stem economic slowdown

CNBC

  • Both Brent and U.S. crude futures were mostly firm.
  • Chinese finance ministry officials said on Wednesday that the government would step up fiscal spending this year to support its economy.

A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Getty Images
A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Oil prices were steady on Wednesday on hopes that increased Chinese spending would stem an economic slowdown that is showing signs of spreading and has been weighing on financial markets.

International Brent crude oil futures were at $61.49 per barrel at 0314 GMT, virtually unchanged from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $52.98 per barrel, 3 cents below their last settlement.

The steadier prices followed a 2-percent fall in crude futures and a slump in international financial markets on Tuesday as concerns over global growth spooked investors into looking for safe-haven assets such as government bonds or gold.

Japan on Wednesday reported that its December 2018 exports fell by 3.8 percent, the most in more than two years, dragged down by plummeting shipments to China and wider Asia as weak global demand and U.S.-Sino trade frictions take their toll on the trade-reliant economy.

A widespread economic slowdown is expected to also dent growth in demand for fuel, weighing on energy prices.

Steen Jakobsen, chief economist at Denmark’s Saxo Bank, said in a first quarter 2019 outlook that “the global economy is suffering”, but added that China’s government will do all it can for stability.

Chinese finance ministry officials said on Wednesday that the government would step up fiscal spending this year to support its economy.

Another key support would be for the United States and China to find a solution to their bitter trade dispute, Jakobsen said, but to prevent a sharp economic slowdown, a solution needs to show itself before Feb. 5, the Lunar New Year.

Should a deal be reached by then, “we will see powerful support for the Chinese economy”, he said, as well as the launch of strong stimulus programs to keep the economy growing.

Despite this, Jakobsen warned that stimulus programs could not keep the economy going forever, and there was a large risk of another downturn in 2020.

Providing oil prices with support in 2019 have been production cuts led by the Organization of the Petroleum Exporting Countries (OPEC), aimed at reining in an emerging supply overhang.

Whether OPEC’s efforts will be successful will also depend on the development of oil production in the United States, where crude output jumped by 2 million barrels per day (bpd) in 2018 to an unprecedented 11.9 million bpd.

The boom was largely fueled by onshore shale oil drilling. And while the U.S. Energy Information Administration (EIA) said on Tuesday that it expected shale output to rise further, it said that production growth would slow in the coming years.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s