• 5 minutes Iran Says It Arrested 17 CIA Spies, Some Sentenced To Death
  • 9 minutes Will We Ever See 100$+ OIL?
  • 13 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 2 hours Iran Loses $130,000,000 Oil Revenue Every Day They Continue Their Games . . . .Opportunity Lost . . . Will Never Get It Back. . . . . LOL .
  • 2 hours How is E&P of Marginal Oil on the UKCS Similar to the Shale Oil Operations in the US?
  • 7 hours Oil Giant Saudi Arabia Is Set to Start First Wind-Power Plant
  • 4 hours So You Think We’re Reducing Fossil Fuel? — Think Again
  • 35 mins Renewables provided only about 4% of total global energy needs in 2018
  • 3 hours Berkeley becomes first U.S. city to ban natural gas in new homes
  • 6 hours EIA Reports Are Fraudulent : EIA Is Conspiring With Trump To Keep Oil Prices Low
  • 2 hours N.Y. Governor Signs Climate Bill
  • 17 hours First limpet mines . . . . now fly a drone at low altitude directly at U.S. Navy ship. Think Iran wanted it taken out ? Maybe ? YES
  • 16 hours Today in Energy
  • 13 hours Which is a better domain name for OAPEC?
  • 21 mins U.S. Administration Moves To End Asylum Protections For Central Americans
  • 5 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
Alt Text

Russian Crude Could Still Be Dirty By Mid-2020

Polish refiner PKN Orlen has…

Alt Text

Increasingly Weak Demand Outlook Caps Oil Prices

Another downgrade in global crude…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Premium Content

Oil Under Threat As Global Economy Struggles

Warning signs about the slowing of the global economy continue to crop up, and market jitters are taking the steam out of oil prices.

U.S. corporate earnings are no longer sky-high, with a range of factors starting to cut into margins. The U.S.-China trade war has not made headlines in the same way it did a few weeks and months ago, but the reality is that the impact of tariffs is only growing as costs work their way through supply chains.

“These trade tensions are coming home to roost and they are impacting the fundamentals of the market,” Tally Leger, equity strategist at OppenheimerFunds, told Reuters. “Thanks to trade tariffs we are facing the headwinds of a stronger dollar, higher oil prices, and rising interest rates.”

This week, a slew of disappointing earnings came in. Caterpillar said that tariffs cost the company $40 million in the third quarter, and its share price fell roughly 7.6 percent after it reported its figures. Poor figures also came from 3M and Harley-Davidson, prompting selloffs in their stocks as well. 3M said that tariffs could cost the company $20 million this year, a figure that will balloon to $100 million next year. The results spooked the markets, dragging down equities more broadly. The S&P machinery index was down more than 4 percent in the last two days.

Evidence of a slowdown in China is also becoming apparent. 3M saw sales dip in China, as did PPG Industries, which makes paint and coatings. “We see other signs of slowing in China; the automotive build rates are down significantly and that has a knock-on effect,” Michael Roman, CEO of 3M, said. Sales of cars in China fell 12 percent in September from a year earlier.

A strong dollar is another source of trouble for the global economy. Harley-Davidson said that international sales of its motorcycles were hit by a strong greenback. The Federal Reserve has hiked interest rates multiple times in the last year, and is expected to continue on that course.

Related: Oil Steady Despite Major Crude Build

The array of problems raise the prospect of peak industrial earnings. Strong GDP figures and a massive corporate tax cut temporarily juiced profits, and earnings could fall to more pedestrian levels, particularly as costs start to creep up. Some analysts think the fears of weaker earnings are overblown, but investors have clearly grown worried about the trajectory of the U.S. economy. And it has been the U.S. that has stood out while much of the rest of the world already began to lose steam. The U.S. cannot defy gravity forever.

The housing market is also starting to flash warning signs. For the week ending on October 12, the volume of mortgage applications fell by 7.1 percent. Higher interest rates are clearly being felt in housing, pushing homes out of reach for some prospective buyers.

President Trump recognizes the political threat he faces if interest rate hikes spoil the party. “Every time we do something great, he raises the interest rates,” Trump said of Fed Chairman Jerome Powell in an interview with the Wall Street Journal on Tuesday. He “almost looks like he’s happy raising interest rates.” Trump added that it was “too early to say, but maybe” he regrets nominating Powell. Trump complained that “Obama had zero interest rates.”

The economic headwinds are deflating the oil market, where supply tightness has dominated attention for the past few months. Recently, however, some of the supply fears have eased. Saudi Arabia has vowed to cover any supply gap, should it emerge. Inventories continue to rise. The outages in Iran are seem to be less of a concern to traders.

Now demand is becoming a concern. As the global economy slows, particularly in China, consumption could moderate. Brent crude fell by 4 percent on Tuesday amid a broader market selloff.

“The crude oil price action yesterday was clearly impacted by bearish equity markets, falling ten-year interest rates, rising gold prices and a clear risk adverse sentiment,” said Bjarne Schieldrop, chief commodities analyst at SEB.

The next steps are unclear. There will be a tension between the supply losses from Iran, which will serve to tighten the oil market, and the supply gains from U.S. shale and Saudi Arabia. The demand side is decidedly more negative, with economic problems potentially forcing a rethink among forecasters.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • EHLipton on October 25 2018 said:
    What your seeing in the market is REALITY,TRUTH. Even the greatest book, boring to some including myself, stated a separation of people by language was to be. Has nothing to do with prejudice or racism. Has only to do with the commune between God and his people. China has moved on, a bit dinged up but doing just fine. It isn't necessarily Trump's fault, though I feel he had a larger personal agenda in mind then bringing back Jobs to our country, "not working out so well though". Oil is not the end all or the sacred cow. God's intended,, will be done. We all need to tend our own gardens. And as my mother use to say; if you don't have anything constructive to say, shut your mouth. The same can be said for meddling in the affairs of other countries, If it isn't constructive help, mind your own business. Help,, for those who have forgotten, is not doing something YOUR WAY, but assisting another to do it there way.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play