Oil prices tumbled 3 percent on Tuesday on signs that an economic slowdown in China is spreading, stoking concerns about global growth and fuel demand.
The gloomy news from the world’s second-largest economy and top oil importer pulled down financial markets across Asia.
International Brent crude futures were down $1.97, or 3.1 percent, at $60.77 per barrel at 10:08 a.m. ET (1508 GMT), down 88 cents or 1.4 percent. U.S. West Texas Intermediate crude futures fell $1.78, or 3.3 percent, to $52.02 per barrel.
China reported the lowest annual economic growth in nearly 30 years on Monday and its state planner warned on Tuesday that falling factory orders point to a further drop in activity and more job losses.
While China’s oil imports have so far defied the economic slowdown, hitting a record above 10 million barrels per day (bpd) in late 2018, many analysts believe that the country has reached peak energy growth, with its thirst set to wane.
“Slowing manufacturing activity in China is likely weighing on demand,” said Singapore-based tanker brokerage Eastport, adding that industrial slowdowns tend to be leading indicators that feed gradually into lower demand for shipped oil products.
In a sign of spreading economic weakness, growth in South Korea’s export-oriented economy slowed to a six-year low of 2.7 percent in 2018, official data showed on Tuesday.
The International Monetary Fund on Monday trimmed its 2019 global growth forecast slightly to 3.5 percent, from 3.7 percent in last October’s outlook.
“Does that mean a global recession is around the corner? No,” IMF Managing Director Christine Lagarde told reporters at the World Economic Forum in Davos, Switzerland. “But the risk of a sharper decline in global growth has certainly increased.”
Despite the darkening outlook, oil prices have gained some support from supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) since the beginning of this month.
“The oil market will become gradually rebalanced during the course of the year. For this to happen, OPEC+ will need to consistently implement the agreed production cuts,” Commerzbank said in a note.
However, official data from the world’s top exporter Saudi Arabia on Monday showed its crude oil exports in November rose to 8.235 million bpd from 7.7 million in October, indicating there may be no shortage of supply in some markets.
