Oil Prices Tank as China Reports Shrinking GDP
Oil prices have slid further, after China reported that its economy had contracted in the first quarter for the first time in decades as a result of the measures taken to contain the Covid-19 outbreak.
Chinese GDP fell 6.8% year-on-year in the three-month period, its national statistics agency said on April 17, marking the first contraction since at least 1992, when the country began reporting quarterly GDP.
Opec also published its latest oil market report on April 16, forecasting a 6.9mn b/d reduction in global oil consumption this year, or around 6.9%. A month earlier it projected a small increase of 60,000 b/d. The International Energy Agency (IEA) painted a bleaker picture in its report mid-April, forecasting a 9.3mn b/d drop.
Dated Brent is trading at $27.84/b at time of press, down 3.75% from the previous close of trading, while West Texas Intermediate is at $18.40/b, down 8.2%.
While Opec+'s landmark agreement to cut global oil production by 9.7mn b/d next month has helped stave off a further price rout, it goes nowhere near far enough to make up for the demand destruction caused by Covid-19 lockdowns. The IEA sees global consumption slumping 29mn b/d year on year this month, and 26mn b/d in May.
Russian energy minister Alexander Novak and his Saudi counterpart Abdulaziz bin Salman spoke on the phone on April 16, saying in a joint statement that they were willing to cut production further with other Opec+ members if needed.
The plunge in oil prices to near two-decade lows has been catastrophic for the US shale industry. One of the sector's biggest players ConocoPhillips announced on April 16 it had taken further steps to protect its business. It has slashed its capital expenditure plan for 2020 by a further $1.6bn, bringing it to $4.3bn. The reductions will primarily affected the firm's operations in the US and Canada.
The US major also said it would reduce its planned North American output by 225,000 b/d starting in May, and lower its operating costs by $0.6bn to $5.3bn.