The oil market has suddenly gone south in recent weeks, with cracks in the global economy starting to drag down oil. The U.S.-China trade war is one of the drivers of the souring climate. But that conflict could get a lot worse in the months ahead.
The latest flashpoint is the lira crisis in Turkey, which is dragging down other currencies and sparking fears of an emerging market crisis. But the problems have been building for some time. The IEA warned last week that the oil market has been “cooling down,” which was partly the result of a restoration of outages in Libya, but also a slowing of demand in the second and third quarters.
The return of some supply and the slowdown in demand has depressed prices in July and August. “Brent is thus facing its third consecutive weekly loss. WTI even looks set to be down for the seventh week running – which would be its longest losing streak in three years,” Commerzbank wrote in a note.
Other negative signs have become more visible. Fuel markets are showing signs of trouble. Oil demand in Asia is slowing down. Timespreads in the oil futures market are throwing up some bearish signals.
From here, it is unclear which way we go. The outages in Iran loom, but so does a potential further knock on demand.
One main “factor to consider is that trade tensions might escalate and lead to slower economic growth, and in turn lower oil demand,” the IEA warned, clearly referring…