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Oil prices plunged again Thursday, driven by fears of a slowdown in demand.
An unexpected increase in inventories has highlighted the downside risk of oil prices. The EIA announced a reduction in crude inventories, but a huge combined increase in gasoline and diesel stocks of 9.25 million barrels, which surprised traders. In addition, demand for gasoline declined by 0.5 Mb / d during the week ending July 12th, although changes from one week to the next are typical and consistent. the data a little noisy.
Crude prices sold on the news, falling nearly 3% on Thursday.
The release of the data has raised fears of slowing demand. However, US demand has more cracks than a week of data. "The [year-on-year] As of July 11, demand has increased by only 29,000 barrels per day (kb / d), up 0.1%, "wrote Standard Chartered in a note. "Demand will have to be strong for the rest of the year if the consensus forecast for growth in 2019 is to be met." . According to Standard Chartered, demand for oil in the United States "seems to correspond to a slowdown in the economy."
What is worrying for the oil market is that the US economy has held up better than elsewhere. In China, GDP growth slowed at its weakest pace in almost three decades. India, which is widely regarded as the main source of growth in oil demand in the medium and long term, also disappointed. Related: The Iranian Tactical Movement Against Sanctions
The International Energy Agency (IEA) said world oil demand had only increased 0.45 Mb / d in the second quarter. This contributed to a surprising supply / demand surplus of 0.5 Mb / d in the second quarter. In June, the IEA predicted that the oil market would record a deficit of 0.5 billion barrels a day.
The agency said the lukewarm demand of recent months was motivated by many reasons. "European demand is weak; growth in India disappeared in April and May due to slower deliveries of LPG and weak aviation sector; and in the United States, the demand for gasoline and diesel in the first half of 2019 has decreased compared to the previous year, "wrote the IEA in its July report on the US market. oil.
Nevertheless, the IEA has maintained its full-year outlook for demand growth of 1.2 Mb / d, arguing that economic growth would rebound in the second half of 2019. Part of this optimism lies in the resolution of the US-China trade war. seems a bit speculative. The reports suggest that the trade talks are "stalled" as the Trump administration struggles to figure out how to handle the Chinese giant Huawei technology. The Trump-Xi meeting on the sidelines of the G20 conference in June was expected to revive trade negotiations, but as reported by the Wall Street Journal, no meeting has been scheduled yet. The WSJ also said that the Trump administration "seems to be resigned to a long battle".
This certainly calls into question the optimism generated by IEA demand growth figures. "The IEA and EIA remain optimistic baduming an economic rebound in 2H19 and see global demand growth almost triple, from around 0.6 Mb / d / yr in 1H19 to around 1.5 to 1, 8 mb / d / yr in 2H19, "said Allyson Cutright, Senior. Analyst at Rapidan Energy Group. "Although we are seeing a recovery in 2S19, especially in China due to the macroeconomic recovery and easing of restrictions on gasoline-powered cars, the overall trend in agency reviews is probably still in the pipeline. down. "
Weak demand and increased supply create a perfect storm by 2020. The IEA said "the call for OPEC" could drop by 0.8 Mb / d next year , which is based on rather optimistic figures of demand growth. Related: OPEC oil giants give brokerages a boost
As a result, OPEC + has a serious problem to deal with. On the one hand, it can continue to reduce production in order to avoid the collapse of oil prices. But that would require building consensus and making deeper sacrifices. The alternative is not much better. The OPEC + can maintain current production cuts (or abandon them altogether) and let prices collapse.
"Our balances have long badumed that OPEC + should extend and deepen reductions next year and the Saudi Arabia project will be the most affected by the further cuts," said Allyson Cutright, of Rapidan Energy Group. "Our latest update shows that Saudi Arabia needs to reduce production to about 9mb / d next year, which implies decent economic growth."
Rapidan is betting that OPEC + will opt for cuts, which could be enough to avoid lower prices. "However, if a recession occurs or if US sanctions on Iran are lifted, the flood of new oil would probably prove too important to be managed by OPEC + and oil prices. would collapse, "Cutright said.
By Nick Cunningham from Oilprice.com
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