Fears that supply is outweighing present and likely future demand is weighing on oil prices.
On August 27, The Wall Street Journal reported that high inventories, steady production and slowing demand would, some fear, “result in a glut of oil."
Crumb of comfort
The downward trend has continued pretty much uninterrupted during the past year, despite incidents such as the seizure of oil tankers and the general tensions in the Persian Gulf region that would normally be expected to see prices spike upwards.
This morning, Brent was up 0.86% at $60.02 a barrel, while WTI was 1.07% to the good at $55.52. But one month ago, both were trading slightly higher, with Brent at $63.71 on July 29 and WTI priced at $56.87.
The decline over the past three months has been significant. On May 28, Brent was changing hands at $70.11 and WTI at $59.14. Go back 12 months, and Brent was worth $75.95 on August 28, 2018, and WTI traded at $68.53.
Both crudes saw their 12-monthly high points well back into last year, on October 3, when Brent was worth $86.29 and WTI $76.41. The low point for both Brent and WTI came on December 24, when they traded at $50.47 and $42.53 respectively.
One crumb of comfort for those who have backed oil to rise may be that, since that low point, a new trading range may have been established. Brent’s high point since December 24 came on April 23, when it reached $74.51 a barrel, and its low point on August 7, on $56.23.
Growth forecasts cut
On the same dates, WTI saw a high of $66.30 and a low of $51.09.
Two major problems are hanging over the oil market and they have very little to do with fighting in the Middle East and the despatch of American warships to the Gulf. One is supply, specifically the strong increase in U.S. oil production and, more importantly, exports. Currently, America ships about three million barrels a day, but infrastructure investment is expected to allow that to increase to four million barrels by the end of the year with possible further increases beyond that point.
In contrast with countries that rely heavily on oil-industry earnings, thus have an incentive to curb production to support prices, US consumers and politicians instinctively favour cheap energy in all its forms, as does industry.
This expanded supply is colliding with softening demand as signs multiply of an economic slowdown if not an actual recession. In July, the International Monetary Fund (IMF) cut its 2019 global growth forecast by 0.1 percentage point to 3.2% and made an identical cut to next year’s growth forecast to 3.5%.