Oil prices are down despite OPEC+ production cuts and the war in Ukraine because of growing economic worries focused on the U.S. and China.
But this is no longer affecting traders only. The rout is spreading to related industries, including tanker owners, who are witnessing their stocks dive.
“We believe the market will more heavily discount energy exposed companies, including tanker owners, based on current downside demand risks and negative macroeconomic sentiment,” Deutsche Bank shipping analyst Chris Robertson said this week as quoted by Freight Waves.
“Oil prices have been on the decline over the past few weeks, falling further this week on weak manufacturing data out of China,” he noted.
Fresh data from China showed earlier this week that manufacturing activity in the world’s largest oil importer shrank in March, contrary to expectations of another expansion.
At the same time, clouds are gathering over the United States as Congress is locked in negotiations of the debt ceiling, with the word “default” beginning to appear increasingly often in news headlines.
The recent collapse of First Republic Bank only fuelled the negative sentiment, as did signals from Fed chairman Jerome Powell that this week will see yet another rate hike as the U.S. central bank continues to fight inflation with questionable success.
In more worrying signs, U.S. diesel demand is on the decline, suggesting a contraction in key industries such as freight transport, which has intensified fears of a recession in the world’s biggest economy.
It is, however, worth noting that talk about a U.S. debt default occurs every year when Congress starts discussing the debt ceiling. So far, defaults have successfully been avoided, and there is no reason why this year should be any different. That would leave the Fed and its interest rate policies the focus of attention, along with China.
By Charles Kennedy for Oilprice.com
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However, the author shouldn’t involve China in the oil price rout. This is a purely American affair involving a collapse of three American commercial banks which if followed by more bank collapses could precipitate a global banking or financial crisis.
China’s economy is projected to grow this year at 5.2%-6.5% according to the IMF and could even exceed these growth projections. Even a powerful bullish factor like China could find it difficult to cope with a threat of a global banking crisis. Just remember the 2008 subprime financial crisis which started in the US and spread to the world.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert