Crude oil prices fell on Friday amid growing investor concerns about the global economy after the European Central Bank (ECB) warned of the widening weakness of the Eurozone and China reported a significant collapse of its imports and exports.
The increased oil supply from the US also hit prices, with Brent futures falling by 0.52 USD, or 0.8%, to 65.78 USD per barrel. The US WTI crude oil futures fell by 0.41 USD, or 0.7%, to 56.25 USD per barrel.
Financial markets, as well as crude oil futures, have been hit by the speech of the ECB President Mario Draghi, who said on Thursday that the economy is in “a period of continuing weakness and overall uncertainty”.
The slowdown in economic growth, in turn, leads to a slowdown in fuel demand, which puts pressure on oil prices. So far, oil demand has remained relatively stable, especially in China, where crude oil imports are on average more than 10 million barrels per day. Delaying economic growth at some point will likely reduce demand for raw materials, which will lead to price pressures.
China’s exports in February dropped by 21% YoY, which is a much larger decline than analysts’ expectations for 4.8%. Meanwhile, the imports shrank by 5.2% at a consensus forecast of 1.4%.
In terms of supply, oil prices are supported by production constraints by the Organization of Petroleum Exporting Countries (OPEC). OPEC, along with some non-cartel countries, including Russia, is committed to cutting production by about 1.2 million barrels per day to tighten the markets. These efforts, however, are undermined by rising crude oil production in the US, which has jumped by more than 2 million barrels per day to an unprecedented 12.1 million barrels per day since the beginning of 2018. This makes the United States the largest producer in the world after Russia and Saudi Arabia.
US oil production and exports
Investment Bank Jefferies said on Friday that US production growth was mainly supported by land-based fields, but soon will have additional expansion. The two largest mining companies in the United States, Exxon Mobil and Chevron, announced they will increase investments to extract oil from offshore oil fields.
The exports of crude oil from the US also recorded new records, reaching 3.6 million barrels per day in February – more than OPEC members such as the United Arab Emirates, Kuwait or Iran.
Some analysts even expect the United States to soon overtake Saudi Arabia as the largest oil exporter in the world.
Saudi Arabia currently exports about 7 million barrels of crude oil plus about 2 million barrels per day NGL and petroleum products, while the US exports roughly 3 million barrels of crude oil and 5 million barrels of NGL and petroleum products. According to the analysts from Rystad Energy, the US oil production will grow by nearly 1 million barrels per day in 2019. And this export will bring enormous benefits to the US economy. In their analysis, the US trade deficit will evaporate and the debt will be repaid quickly thanks to the rapid rise in US net exports of oil and gas.
However, their analysis differs from the latest report of the Energy Information Administration. The US crude supplies rose by 7.1 million barrels for the week ended March 1. That was well above the average climb of 1.9 million barrels expected by analysts, but just under the 7.3 million barrel increase reported by the American Petroleum Institute data on Tuesday.
According to the Weekly Petroleum Status Report, the US crude oil imports averaged 7.0 million barrels per day last week, up by nearly 1.1 million barrels per day from the previous week, while crude oil exports averaged 2.8 million barrels per day, down by 556,000 barrels per day from the previous week.
Last week, U.S. crude oil imports hit a 23-year low, averaging 5.9 million barrels per day, down by about 1.6 million barrels per day from the previous.
Over the past four weeks, crude oil imports averaged about 6.7 million barrels per day, 11.7% less than the same four-week period last year. The daily average exports of crude oil over the past four weeks were about 3.0 million barrels, up by 1.5 million barrels per day year-on-year.