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Page added on August 14, 2019

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Oil Markets Face Nightmare Scenario

Consumption

Oil prices rose sharply on Tuesday after President Trump decided to delay tariffs, recognizing the negative impact tariffs would have on the U.S. economy. But by Wednesday, oil prices crashed again, as financial markets see the risk of economic recession rising in spite of the tariff delay.

The closely-watched spread between two-year and 10-year treasury yields finally flipped, the first time that has occurred since 2007. Yields on two-year notes are trading higher than 10-year treasuries, a phenomenon that has reliably preceded past economic recessions. Financial markets took note, and sold off stocks and commodities of all types.

This problem has been brewing for a while, with the early signs of an inverted yield curve showing up last year. Economists and analysts have been watching this for months, but the spread received a jolt after the recent announcement from President Trump regarding a new round of tariffs. He now seems to have regretted that decision, but market traders are not assuaged. The tariff delay “doesn’t really change the outlook on the trade tensions,” Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, told Bloomberg. “We expect further policy easing in the coming months to help stabilize growth amid the above headwinds.”

The negative sentiment might be here to stay because reams of other data point to an economic slowdown.

For instance, China’s latest industrial data for July was the weakest since 2002. Germany’s economy contracted in the second quarter and is nearing recession. The same is true of the UK, which also saw GDP fall in the second quarter.

Car sales in China have declined for 13 of the last 14 months. Car sales in India and Germany also fell sharply in July. Global manufacturing activity and trade volumes are down.

The ECB is expected to cut interest rates again, and the U.S. Federal Reserve might be compelled to do so again, after only recently cutting rates for the first time in a decade.

Some economists think bond yields could go to zero or even into negative territory if recession hits. “This is the ultimate indicator that something is fundamentally wrong with the world economy,” Adam Posen, president of the Peterson Institute for International Economics, told the Washington Post. “The escalation of the trade war is making it worse.”

Notably, yields on 30-year treasuries plunged in recent days as well, a sign that capital is flowing into safe haven assets as fears of recession take hold.

After routinely boasting that the trade war was hurting China more than the U.S., and that China was forced to pay billions of dollars to the U.S. government because of tariffs, President Trump essentially admitted that U.S. consumers were bearing the brunt of the impact when he called off some of his proposed tariffs on Tuesday.

On the one hand, stepping back from the brink could put both sides on the path to a negotiated settlement – Chinese and American negotiators are scheduled for face-to-face talks in September – but it could also signal vulnerability.

Viewed from the perspective of Beijing, the flip-flopping from the U.S. is an admission from Trump that he can’t survive politically if the U.S. economy slows down too much. For Xi Jingping, there is little incentive to offer concessions of any significance. If that is the lesson then the trade war could drag on indefinitely.

Notably, the delay of U.S. tariffs saw oil prices soar on Tuesday as it seemed to take away a major economic headwind. But the bump was temporary, with prices falling back just as sharply on Wednesday after the raft of poor economic data and the inverted yield curve pointed to an oncoming economic recession.

Some analysts don’t say any major pitfalls to oil prices. “Oil demand in China and the US is unlikely to weaken noticeably as a result of the trade conflict, though if this were to happen Saudi Arabia would further reduce its output,” Commerzbank said in a note. “Thanks to the OPEC+ production cuts, the oil market will be undersupplied in any case in the second half of the year.”

Perhaps. But on the current trajectory, a supply glut is looming in 2020. On that much, most agree. But the problem is that recent price downturns were largely the result of U.S. shale growing faster than demand. This time around, the danger is much larger. A global economic recession would bring the expected supply glut forward, and make it much worse.

By Nick Cunningham of Oilprice.com



12 Comments on "Oil Markets Face Nightmare Scenario"

  1. Robert Inget on Wed, 14th Aug 2019 8:48 pm 

    Conversation

    Giovanni Staunovo
    @staunovo
    #India: July oil demand +3.3% Y/Y to 17.6mt

    Gasoline +8.8% y/y
    Diesel +3.3%
    LPG +9.0%
    Naptha -5.3%
    Petcoke -12%

    May consumption revised from 18.3mt to 19mt

    PPAC #OOTT

  2. Twocats on Wed, 14th Aug 2019 10:12 pm 

    Not everyone is predicting yet another round of glut. Hmm it’s almost like someone was predicting for years (cough Short) that prices would fall even as oil became scarce and expensive. Who woulda thought?

  3. Robert Inget on Thu, 15th Aug 2019 9:21 am 

    Trump: Israel shouldn’t let Omar, Tlaib visit country

    President Trump on Thursday said Israel should not allow two U.S. congresswomen with whom he has feuded to enter the country for an upcoming trip to Israel and the Palestinian Territories.

    Trump tweeted that it would show “great weakness” on Israel’s part if it allowed Reps. Ilhan Omar (D-Minn.) and Rashida Tlaib (D-Mich.), the first two Muslim women elected to Congress, to cross its border.

  4. joe on Thu, 15th Aug 2019 9:36 am 

    This guy is playing the outrage game to a tee. He’s gonna sit back and laugh while all the insanocrats go red in the face with fake outrage on behalf of those who made the suicide bomb into an artform. Think Trump gives a Sh1t what Taliban and mullah Omar think…..

  5. joe on Thu, 15th Aug 2019 9:39 am 

    Btw, if ur gay or a jew in Omar’s true America, watch out. Be care lefties it’s hard to choose which side to take when both ur outrage groups fight each other, in Birmingham here the muslims are attacking equality education in Muslim area state schools…..

  6. Robert Inget on Thu, 15th Aug 2019 9:57 am 

    Hit Job Updates;

    MORE ON:
    JEFFREY EPSTEIN
    Haunting photos show Jeffrey Epstein’s ‘Pedophile Island’ in the Caribbean
    Jeffrey Epstein’s bodyguard: ‘Somebody helped him’ kill himself
    American flags lowered to half-staff on Jeffrey Epstein’s private islands
    Ex-Miami mayor says he doesn’t know how Epstein got his number
    Jeffrey Epstein’s autopsy determined the convicted pedophile suffered multiple broken neck bones, according to a report.

    One of the breaks was to Epstein’s hyoid bone, an injury that experts told the Washington Post is more common in homicide victims.

    The discoveries were disclosed to the paper by two people familiar with the findings of the autopsy, which was completed on Sunday, but warranted more information by the Medical Examiner’s Office before it makes a final cause-of-death ruling.

    “Today, a medical examiner performed the autopsy of Jeffrey Epstein,” said Chief Medical Examiner Dr. Barbara Sampson in a statement Sunday night.

    “The ME’s determination is pending further information at this time. At the request of those representing the decedent, and with the awareness of the federal prosecutor, I allowed a private pathologist (Dr. Michael Baden) to observe the autopsy examination. This is routine practice.”

    Sampson’s office didn’t answer a request for comment from the Washington Post about the injuries.

  7. Robert Inget on Thu, 15th Aug 2019 10:09 am 

    Israel bars Omar and Tlaib entry after Trump’s urging
    Israel on Thursday announced that it would block Reps. Ilhan Omar (D-Minn.) and Rashida Tlaib (D-Mich.) entry to the territory during an upcoming overseas trip, according to multiple reports.

    The decision was announced moments after President Trump tweeted that it would show “great weakness” for Israel to allow the two congresswomen into the country. The president has been an outspoken critic of both Omar and Tlaib, who last year became the first two Muslim women elected to Congress.

    OK. American Jews.
    Are you going to just keep quiet?
    Or, are you going to let Fascists win?
    I’m guessing you will and ‘they’ win.

  8. JuanP on Thu, 15th Aug 2019 10:18 am 

    “MORE ON:
    JEFFREY EPSTEIN”

    Clintons got him. They are the untouchables and have the liberal democratic party in their sack of tricks.

  9. JuanP on Thu, 15th Aug 2019 10:20 am 

    “OK. American Jews.
    Are you going to just keep quiet?
    Or, are you going to let Fascists win?
    I’m guessing you will and ‘they’ win.”

    Come on Robert The squad are the fascist. WTF, Trump is a moron but the squad are worse.

  10. Robert Inget on Thu, 15th Aug 2019 11:14 am 

    Jews Against Plastic Straws:
    Read all about it.

    Miami Beach is among several Florida cities that have now banned plastic straws. Major corporations — such as McDonald’s, Royal Caribbean and Starbucks — have now committed to switching to paper straws.

    But while the world is moving away from single-use plastics, the Trump campaign is now selling 9-inch-long plastic Trump straws on its website. A pack of 10 costs $15, and in the three weeks they’ve been out, the campaign said it’s sold over a half-million dollars’ worth. (30)

    (plastic straws have zero to do with climate change) No matter. It sounds anti Trump being against single use plastic.

    Air Born Plastic Particles
    The lead scientist, Dr Melanie Bergmann, told BBC News: “We expected to find some contamination but to find this many microplastics was a real shock.”

    She said: “It’s readily apparent that the majority of the microplastic in the snow comes from the air.”

    Microplastics are defined as those particles below 5mm in size.

    https://www.bbc.com/news/science-environment-49295051

    I would argue micro-plastics are really quite democratic, effecting every air breather.

  11. JuanP on Thu, 15th Aug 2019 12:12 pm 

    “But while the world is moving away from single-use plastics, the Trump campaign is now selling 9-inch-long plastic Trump straws on its website. A pack of 10 costs $15, and in the three weeks they’ve been out, the campaign said it’s sold over a half-million dollars’ worth. (30)”

    Come on Robert like a ban on straws will matter. The problem is with rich people like you and me who consume too much to begin with. You can’t make that green even with your stupid solar panels and EV car.

  12. Outcast_Searcher on Thu, 15th Aug 2019 3:07 pm 

    Over time, global oil use increases with the global economy. As it will, until and unless oil is replaced as the world’s primary transport fuel, which will take multiple decades, best case.

    Over time, global petrochemical demand will almost certainly increase as global population and living standards rise.

    Worrying about what will happen to oil prices in a month or two years is inconsequential. It’s what will happen in decades which matters for investors (vs. speculators).

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