Oil Slumps Most in a Month as IMF, Trade Dispute Darken Outlook

(Bloomberg) -- Oil slumped by the most in almost a month as economic warning signs flashed from Chinese trade talks to the U.S. housing market.

Futures fell 2.3 percent in New York on Tuesday as traders returned from a long holiday weekend to increasing anxiety about global demand. Crude followed equity markets lower after a report that the U.S. has rejected new negotiations in its trade dispute with Beijing. That followed disappointing housing data from America and the International Monetary Fund’s decision to cut its growth forecast.

Oil was off to its hottest start for a year since 2001, on signs that crude supplies will be kept in check by production curbs from the Organization of Petroleum Exporting Countries and its allies. But the outlook for weakening fuel demand and the ongoing U.S. shale boom are threatening the rally.

“As equities are coming down from those reports, that’s dragging oil down as well," said Kyle Cooper, a Houston-based consultant at Ion Energy Group LLC. With U.S. production surging, “it might be time for some pullback."

OPEC and its partners have begun “sharp reductions” and the market “has started to respond positively,” Secretary-General Mohammad Barkindo said in a TV interview from the World Economic Forum in Davos, Switzerland.

Nonetheless, OPEC leader Saudi Arabia has criticized the pace of Russian cuts. A meeting this week between the alliance’s two biggest producers now seems unlikely, as Saudi Energy Minister Khalid Al-Falih and Russian counterpart Alexander Novak have both scrapped trips to the forum.

West Texas Intermediate crude for February, which expires Tuesday, fell $1.23 to close at $52.27 on the New York Mercantile Exchange, its biggest decline since Dec. 27. The more active March contract dropped to $53.01. There was no settlement on Monday because of the Martin Luther King Jr. holiday in the U.S.

Brent for March settlement declined $1.24 cents to $61.50 a barrel on the ICE Futures Europe exchange. The global benchmark price was at an $8.49 premium to West Texas Intermediate for the same month.

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“Concerns about excess supply have been eased for the time being thanks to OPEC’s production cuts,” said Kei Kobashi, a senior analyst at Sumitomo Corporation Global Research Co. “Now, the demand side is called into question. People are trying to figure out how much China’s and the world’s crude demand will fall.”

The IMF on Monday lowered its outlook for the global economy for a second time in three months. The lender now predicts growth of 3.5 percent this year, the weakest in three years and down from 3.7 percent expected in October. The fund warned trade tensions could spell further trouble.

That came after Chinese President Xi Jinping, meeting his country’s top leaders on Monday, stressed the need to maintain political stability -- a fresh sign he’s nervous about a decelerating economy.

--With assistance from Tsuyoshi Inajima, Michelle Kim and Grant Smith.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Catherine Traywick, Carlos Caminada

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