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Oil Bears Beware, Crude Prices Could Soon Spike

Oil Bears Beware, Crude Prices Could Soon Spike

While sentiment in oil markets…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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A Worrying Indicator Of Looming Oil Demand Destruction

  • Recent data from the World Trade Organization shows global trade growth stagnating, a sign that the world may be moving into a recession.
  • The slowdown in global maritime trade growth will likely have a direct effect on oil demand, adding downward pressure to oil prices.
  • Oil prices fell by nearly five percent on Wednesday, and continued news of an economic slowdown is only going to add to bearish sentiment.

Global maritime trade growth is slowing, the latest data shows, in a sign that the global economic slowdown is underway and a recession in major markets could soon materialize, threatening oil demand.

The latest Goods Trade Barometer from the World Trade Organization (WTO) showed at the end of August that global trade growth is stagnating. The indicator “was steady but below the recent trend line for merchandise trade, suggesting that global goods trade continued to grow in the second quarter of 2022 but that the pace of growth was slower than in Q1 and is likely to remain weak in the second half of the year,” the WTO said. 

The latest barometer reading is in line with the WTO’s most recent trade forecast from April, which predicted 3.0% growth in the volume of world merchandise trade in 2022.  

“However, uncertainty surrounding the forecast has increased due to the ongoing conflict in Ukraine, rising inflationary pressures, and expected monetary policy tightening in advanced economies,” the trade organization said. 

Trade volumes are set to weaken through the rest of the year, and stagnating growth has led to a major drop in global freight rates, according to a Wednesday report from S&P Global Market Intelligence cited by CNBC.

With inflation curbing consumer demand, the party is over for spot freight rates, Jonathan Roach, a container shipping analyst at Braemar, told The Wall Street Journal this week. Container shipping rates have plunged by 60% year to date, per Freightos Baltic Index cited by the Journal. 

“The backdrop of a potential global recession, driven by surging energy prices and rapid inflation, is driving down the market. The pandemic boom in demand for consumer products has calmed and spending on travel, leisure, and services made a revival in 2021,” Roach told the WSJ.  

A slowdown in trade growth would only exacerbate the oil market’s fears of recession. On Wednesday, oil prices dipped by 5% as fears of global recession appeared to be driving the oil markets into a longer-term spiral downwards. 

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • DoRight Deikins on September 08 2022 said:
    ¡Así es!
  • Mike Lewicki on September 08 2022 said:
    lagging indicator
  • T G on September 08 2022 said:
    Something about this doesn't make sense as spending is just shifting from discretionary to energy. And just because folks stop spending on iphones or pelotons doesn't mean they're going to stop buying energy.

Leave a comment

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