Oil Rally Comes to an Abrupt End

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Oil prices were back on the defensive Thursday after weak Japanese trade figures dimmed the global growth outlook despite a bigger than expected drawdown in US commercial crude inventories.

West Texas Intermediate (WTI) for October delivery slipped 38 cents or 0.8% to $48.77 a barrel on the New York Mercantile Exchange after surging more than 5% in the previous session. Global benchmark Brent crude was down 61 cents or 1.2% at $49.14 a barrel on the ICE Futures exchange in London. Prices had been supported by a bigger than expected drop in US weekly crude inventories.

Oil prices were under pressure on Thursday after the Japanese government reported a sharp slowdown in exports, heightening concerns about a spillover effect from China. Japan’s exports weakened for a second straight month, rising 3.1% annually in August. Exports had expanded 7.6% the month before.

Imports fell 3.1% in the 12 months through August, followed a 3.2% drop the prior month.

As the world’s third-largest energy consumer, Japan has a significant impact on oil prices. Prices have crashed since June on signs of weakening global demand, primarily in China. According to analysts, a slowing Japanese trade sector could accelerate oil’s race to the bottom until next year, when prices are expected to gradually recover.

Markets can expect volatility to remain in the foreground for the foreseeable future, making it hard to predict future prices, according to Royal Dutch Shell chief executive Ben van Beurden.

“It is a very, very volatile business in terms of supply and demand,” van Beurden said in an interview with the BBC. “The oil price responds to very small mismatches between supply and demand.”

Last week Goldman Sachs lowered its price outlook on crude, citing a much bigger oversupply than previously thought. The multinational investment bank said US crude prices could crumble to $20 a barrel under a doomsday scenario. The baseline forecast for WTI is $45 next year, down sharply from the previous estimate of $57. Goldman also lowered its outlook on Brent to less than $50 from $62.

Global stock markets were mixed on Thursday. China’s Shanghai Composite Index fell for the fourth time in six days, falling 2.1% to 3,086.06.

The Nikkei 225 Index in Tokyo added 1.4% or 260.67 points to close at 18,432.27.

European markets were mostly higher, with averages in Frankfurt, Paris and Madrid reporting gains. The FTSE 100 in London was down in midday trade after reporting gains in each of the last two sessions.