Oil Forecast: Fears of Slowing Global Growth to Limit Further Gains
Crude Oil Talking Points:
- Crude oil price outlook for next week is bearish as the slowing global growth narrative may crimp demand further
- Production cuts and expected rebound in demand for oil is largely factored into current prices, leaving risks tilted to the downside
- Support for further gains in crude oil could come from upcoming economic data if numbers surprise to the upside
Crude oil prices came under pressure this past week in response to the return of market angst over slowing global growth and surprise US inventory buildup of approximately 1 million barrels according to data released by the EIA. WTI Crude started the week slightly above $55.00/bbl but ended the period roughly 4.5 percent lower at $52.50/bbl as investors evaluated the balance between shrinking oil supply and demand.
Looking for a technical perspective on the crude oil? Check out the Weekly crude oil Technical Forecast.
CRUDE OIL PRICE CHART: 15-MINUTE TIME FRAME (FEBRUARY 04, 2019 TO FEBRUARY 08, 2019)
In addition to supply and demand factors, a strong US Dollar which climbed in excess of 1 percent likely contributed to the downside in crude over the last 5 days of trading given the currency is the principal pricing instrument for this and most major commodities.
CRUDE OIL SUPPLY AND DEMAND BALANCE PRICE CHART: QUARTERLY TIME FRAME (JANUARY 2017 TO JUNE 2019)
The most recent International Energy AgencyOil Market Report indicated that OPEC crude output declined by 590,000 barrels in December with the supply cuts expected to continue into 2019 from the cartel’s Vienna Agreement to curb production. The updated report for January will be published Wednesday, February 13 and looks to provide further insight on global oil supply and demand imbalances.
The rebound in oil off its December low mirrored the influx of risk appetite witnessed across the stock market, but recent optimism looks like it may quickly shift back to a pessimistic view. The narrative of investor fear over slowing global growth appears to be evolving into economic reality as recent data suggests – like the European Commission cutting already bleak Eurozone GDP growth from 1.9 percent to a meager 1.3 percent for this year. GDP numbers out of Germany and Japan are expected next week and could reinforce investor angst over deteriorating global fundamentals and thereby demand for fuel to power weaker expansion.
Additionally, the risk of a US government shutdown occurring again lingers in the background with the stopgap funding bill passed late last month having only funded the government through February 15. If a new agreement cannot be reached between congress and President Trump before then, investor sentiment could sour on the prospect of the government shutdown dragging on which would adversely impact US economic growth.
Consequently, the uptick in oil demand expected for the first and second quarters of the year may be revised lower if the global economy continues to weaken which in turn bodes poorly for oil demand and prices. On the contrary, crude bulls may very well prevail should risk trends and economic data surprise to the upside.
Written by Rich Dvorak, Junior Analyst for DailyFX
Follow on Twitter @RichDvorakFX