Slowing economic growth in China could lead to devastation on the oil markets



Despite renewed hope that a fresh trade agreement between the US and China could be imposed on both sides within the March 2 deadline, it is still not enough to offset the negative impact on China's economic growth, which is already noticeable. Sources told Reuters last week that Beijing plans to lower its economic growth target to 6 percent.

The analysis emerged when China's exports declined unexpectedly by 4.4 percent in December, the largest decline in two years. The largest decline in imports in July 2016 was down 7.6 percent. Exports declined since December, and despite government efforts to boost growth (including higher infrastructure spending and tax cuts), exports could stall in a few months as domestic growth slows. The rating agency Moody's also said in a statement that "producer price inflation has slowed down in six consecutive months", contributing to further signs of a slowdown in industrial activity (in China) and a weakening in global demand.

Largest trade surplus in a decade

At the same time as China released its December export data, the country also said that its trade surplus with the US in 2018 had risen 17 percent to a whopping $ 323.32 billion. This figure is likely to put pressure on Beijing during ongoing talks with Beijing US exports to the US rose 11.3 percent in 2018 compared to the previous year, while imports from the US to China rose 0.7 percent over the same period.

Even more worrying for the US, which continues to press China on a range of issues related to trade and intellectual property rights, is that while China's trade surplus against the US reached a peak last year, the trade surplus actually did fell to its lowest level since 2013. points to serious and persistent problems of systemic trade relations with the US. These numbers should give the negotiators in the US even greater influence by negotiating a trade agreement with their Chinese counterparts. Related: Maduro clings to power as the oil collapse in Venezuela continues

According to a CNBC report, China's economy has come up against its own domestic headwind beyond the US wage bargaining. Even before Trump unleashed the recent escalation of trade tensions, CNBC said that after decades of rapid growth, Beijing has been trying to cope with a slowdown in its economy.

Headwind for the global oil markets

China's recent export data predict that the worst could be around the corner could weigh heavily on global oil markets, although oil prices have recently made up for most of the lost ground from mid-October to late last year.

On Monday, oil prices fell by almost 1 percent. The London crude oil benchmark derivatives market fell below the global oil benchmark below the psychologically important price of $ 60 / barrel. NYMEX's US oil benchmark commodity Futures, which traded in West Texas Intermediate (WTI), fell 0.9 percent to $ 51.12 / barrel. Some analysts, referring to the latest data from China, predict that the upward trend in Brent oil prices will be around $ 60 / barrel and WTI will be around $ 55 / barrel. However, China's growth is expected to stall in the first half of the year. The bigger factor for both China's growth and the global oil markets depends on the outcome of ongoing trade talks between Washington and Beijing.

If an agreement can be reached that not only eliminates the risk that President Trump will raise the current tariffs to $ 200 billion for Chinese goods from 10 percent to 25 percent, and Chinese goods worth another $ 267 billion With tariffs on hold, global economic growth will continue to trend upwards in emerging markets, which will impact on rising oil demand, which will bolster higher oil prices. In a worst-case scenario where a trade deal can not or will not be achieved, global economic growth and oil demand will lead to a bearish oil market that will also affect oil producers from Saudi Arabia to Saudi Arabia, Russia, to Canada, to the US and back again.

By Tim Daiss for Oilprice.com

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