Oil prices dip on global growth worry, possible output rise

Oil fell from five-month highs on Tuesday after the International Monetary Fund cut its global economic growth forecasts and as Russia signalled it may retreat from its production-cutting deal with OPEC.

A threat by Washington to slap tariffs on hundreds of European goods halted a rally in global equities, which also dragged on oil futures. Image source: Reuters

Oil fell from five-month highs on Tuesday after the International Monetary Fund cut its global economic growth forecasts and as Russia signalled it may retreat from its production-cutting deal with OPEC. A threat by Washington to slap tariffs on hundreds of European goods halted a rally in global equities, which also dragged on oil futures. Brent settled 49 cents lower at $70.61 a barrel, after hitting $71.34, its highest since November. U.S. crude ended at $63.98 a barrel, down 42 cents on the day, after also reaching a five-month high of $64.79.

"I think the IMF lowering global growth is really the biggest headwind today that oil futures are seeing," said Phil Streible, senior commodities strategist at RJO Futures in Chicago. The IMF cut its global economic growth forecasts for 2019 and warned growth could slow further due to trade tensions and a potentially disorderly British exit from the European Union.

The IMF downgrade, its third since October, added to concerns a slowdown this year will hit fuel consumption and prevent crude prices from rising even higher. Prices also faltered as Russia, a participant in the OPEC-led supply cuts that expire in June, signalled on Monday it wants to raise output when it next meets with OPEC because of falling stockpiles.

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On Tuesday, President Vladimir Putin said Russia did not support an uncontrollable rise in oil prices and that the current price suited Moscow. "We are ready for cooperation with OPEC in decision-making ... But whether it would be cuts, or just a stoppage at the current level of output, I am not ready to say," Putin told an Arctic conference in St. Petersburg.

U.S. sanctions on Iran and Venezuela have deepened the OPEC supply cut and concern has grown this week about the stability of Libyan output. The OPEC member pumps around 1.1 million barrels per day, just over 1 percent of global supply. Rising U.S. crude production and inventories continued to weigh on the market. U.S. crude production was expected to rise 1.43 million bpd in 2019 to average 12.49 million bpd, the U.S. Energy Information Administration (EIA) said on Tuesday, up from its previous forecast for a rise of 1.35 million bpd.

U.S. crude inventories rose by 4.1 million barrels last week, compared with analysts` expectations for an increase of 2.3 million barrels, data from industry group the American Petroleum Institute showed after prices settled. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.3 million barrels, API said. The Energy Information Administration releases its oil data on Wednesday.

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