By Adedapo Adesanya
Oil prices plunged more than 5 per cent on Tuesday on demand concerns after the International Monetary Fund (IMF) reduced its economic growth forecasts and warned of higher inflation.
Brent crude fell 5.07 per cent or $5.74 to sell at $107.40 per barrel, while the price of the United States West Texas Intermediate (WTI) went down by $5.70 or 5.27 per cent to $102.50 a barrel.
The Bretton Wood institution cut its global growth forecasts because of the war in Ukraine, warning that Russia’s invasion could lead to the fragmentation of the world economy into rival blocs.
In its latest World Economic Outlook, the IMF said prospects had worsened “significantly” in the past three months as it reduced its growth estimate for 2022 from 4.4 per cent to 3.6 per cent.
While this affected the market, the oil space was also hit as it sounded a special warning about China’s economy, the largest oil importer in the world.
China’s GDP growth estimate for 2022 was revised downward to 4.4 per cent from its 4.8 per cent estimate in January. Citing what it called a “worsening” economic slowdown, the IMF said it expected a longer downturn in China, despite preparations for the reopening of factories in Shanghai, which could lead to a rise in fuel demand.
“In addition, the combination of more transmissible variants and the strict zero-Covid policy could continue to hamper economic activity and increase uncertainty.
“Larger disruptions could impact key commercial activities, including through port lockdowns,” it wrote.
China’s COVID lockdown due to an Omicron outbreak helped pressure oil prices down last week, with Shanghai factories closed, resulting in lower demand.
Prices also fell despite lower output from the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), which produced 1.45 million barrels per day below its targets in March, as Russian output began to decline following sanctions imposed by the West.
According to an OPEC+ report, last month, members’ combined crude oil production lagged behind the quota by 1.45 million barrels per day, with the compliance rate shooting up to a record 157 per cent since the start of the 10 million barrels per day production cut agreed upon in April 2020.
Russia’s crude oil production, in particular, averaged 300,000 barrels per day below target at 10.018 million barrels per day.
The OPEC+ crude production in March fell further behind the target levels after February output was more than 1 million barrels per day below the collective quota and the compliance rate was 136 per cent.
Meanwhile, disruptions from Libya remain as the country’s National Oil Corp (NOC) declared force majeure on some output and exports as forces in the east expanded their blockade of the sector over a political standoff.
NOC on Tuesday declared force majeure at the Brega oil port over more closures.
