Oil prices diverge on bleak outlook

Oil prices diverged today as markets reacted to mixed sentiment over the outlook for China and the wider global economy.

Brent futures rallied but remained below $30 a barrel, as the International Monetary Fund said that the recent sharp collapse in the price of oil was dragging down the global economy.

The International Energy Agency meanwhile said that crude futures were set to fall further this year as supply vastly exceeds demand, with major oil exporter Iran’s return to the market offsetting any production cuts from other countries.

Despite the bleak series of announcements, Brent oil prices made sizeable gains “in the wake of better than expected Chinese economic data”, said Commerzbank analyst Carsten Fritsch.

“Clearly some market participants had feared worse.”

GDP in China, the world’s biggest energy consumer, grew at its slowest in a quarter of a century last year, creating pressure for more stimulus policies to ensure a soft landing for the economy that is a crucial driver of global growth.

The 6.9 per cent figure was the slowest in the People’s Republic since the 3.8 per cent of 1990, a year after the bloody Tiananmen Square crackdown rocked the country and isolated it internationally.

But while the outcome is much smaller than the double-digit rates seen before the financial crisis, it is seen as the “new normal” and within Beijing’s target range as it looks to recalibrate the economy to a more sustainable model.