- Oil prices have cratered in the last week and are indicative of a weakening growth forecast globally.
- Weak data out of key economies like France, Germany, and China haven’t helped dispel doubts about growth.
- Agreed oil output cuts by OPEC and Russia earlier this month haven’t had the desired effect of raising prices.
Oil prices have dropped to their lowest levels in over a year and its sending a warning to markets about growth prospects for 2019.
Brent crude and WTI have both dropped more than 30% from October’s highs despite efforts by OPEC and Russia to limit production. Both are trading down 3.2% as of 11.50 a.m in London (6.50 a.m EST).
“Investors quickly moved their attention to deteriorating fundamentals in the oil markets, including more signs of slowing economic growth next year, record production and the lack of confidence with OPEC’s pledge to curb production,” said Xi Jiarui, chief oil analyst at JLC.
The Federal Reserve’s decision to hike rates yet again Wednesday sent global markets tumbling further with oil plunging amid concerns about growth from key demand hubs such as China.
If Beijing and Washington can’t agree on a trade deal within the 90-day timeframe set at the G20 summit then an economic slowdown in China, especially in manufacturing, is likely, backed up by weak growth figures last week. Trade war fears could cause a drop in Chinese oil demand, and by extension, global oil demand.
The same goes for the US according to Fiona Cincotta, Senior Market Analyst at City Index. “US demand will decline if the economy there starts weakening next year and on concerns that the US-China trade dispute will continue to affect Chinese demand.”
The oil market is yet another signal in a long line of indicators that global growth is slowing. Fed Ex shares crashed Wednesday after it reported worse than expected figures citing economic slowdown while weak data from Europe and China pointed to a slump last week.
Meanwhile, AP Moller-Maersk, the world’s biggest operator of container ships, recently said that it had seen a much slower pace of growth in the last year.
Oil prices steadied Wednesday following a report from the Energy Information Administration (EIA) that showed US crude oil inventories fell last week. “The apparent surge in demand for oil in the US comes at an important time in the market, as it grapples with concerns about weaker global economic growth,” ANZ analysts said in a note.
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