The last 72 hours have not been good for the prospects for the global economy, and therefore for the price of oil.
On Thursday, the European Central Bank (ECB) surprised most observers by reversing course on monetary policy. They announced that they were suspending interest rate increase, at least until the end of this year, hinted that they may even return to cuts and possible negative rates, and reintroduced a program of discounted lending to banks designed to promote growth. In some instances, loose monetary policy like that could be well received by the market, being seen as a needed and welcome shot in the arm. The problem here though is not the actions taken, but the reason for them.
Mario Draghi, the ECB Chairman talked of risks to growth that were “…still tilted to the downside…” and cut the bank’s estimate for growth in the Eurozone from December’s 1.7% to a very weak 1.1%. He also mentioned negative rates, which suggests to many analysts that even that may be optimistic.
Now after news from China and the U.S. on Friday, Draghi’s pessimism looks warranted and more like…