Brent crude moved over $70/barrel in the first half of April, despite a weak global economy. In its latest World Economic Outlook, the IMF reduced both its estimate of global growth in 2018 and its forecast for 2019, which fell from 3.7% to 3.3%. If realised, this would be the weakest expansion of global GDP since the 2009 financial crisis.
Although the IMF sees something of a recovery in 2020, the OECD’s composite leading indicator has been below its long-term average of 100 since July 2018 and remains on a downward trend, reaching 99.10 in February, again the lowest level since 2009.
There has been some loosening of monetary and fiscal policy in the US, China and Europe, and Chinese-US trade talks appear to be inching towards some kind of resolution, but the world economy continues to skirt recession. The IMF warns that the prospects for recovery remain fragile, but financial markets appear to be taking a ‘glass-half-full’ attitude.
Higher oil prices and weak economic growth are not conditions that will stimulate oil demand. What growth there is will be captured mainly by US producers, raising the cost in terms of market share to OPEC and Russia of their current production curbs, complicating their decision on whether to extend current policy beyond the end of June.
Higher oil prices are justified in the short-term because of the sharp fall in OPEC crude output, which according to S&P Global Platts’…