Oil Prices Drop After Saudi Arabia Says It Will Not Cut Output Alone

Oil prices dropped more than 1.5 per cent on Monday as China’s imports weakened, while comments from top exporter Saudi Arabia that it would not unilaterally cut its output to defend prices also dragged on the crude market.

China’s February crude oil imports from Iran fell 3.7 per cent from a year ago to 2.04 million tonnes. China boosted overall imports late last year, taking advantage of cheap oil to build its reserves, but storage tanks could be reaching their limits, forcing a slowdown in orders.

Weak demand from top energy consumer China comes at a time when the OPEC kingpin Saudi Arabia has reiterated its decision to keep production unchanged and ride out a market slump, which has roughly halved prices since last June.

“We repeat that, as for prices, the market determines it,” Saudi oil minister Ali al-Naimi said on Sunday, adding that Saudi Arabia would only consider output cuts in cooperation with non-OPEC producers.

Brent crude oil futures were trading at $54.36 a barrel at 0830 GMT, down 96 cents. U.S. WTI crude was down $1.02 at $45.55 a barrel.

“If OPEC production were to remain around current production levels and close to its target of 30 mb/d, the implied surplus in the oil market would expand from 0.9 mb/d to 1.3 mb/d,” Barclays said on Monday.

The expected end of years of zero interest rate policy in the United States later this year is putting more pressure on oil markets as investors pull money out of assets and currencies of countries that rely heavily on commodity exports.

“In the past 15 years, the global economy was defined by rising commodity prices, zero interest rate policy, and a weak USD. This cycle has now gone into reverse with a decelerating industrial economy in China and the rise of U.S. shale,” Bank of America Merrill Lynch said in a report.

“A combination of a strong USD, higher interest rates and subdued growth may keep commodity prices in check in 2015,” it added.