Oil prices dipped this morning in the wake of an official warning that crude demand is set to weaken as economic activity slows.
A month ago, Brent traded at $71.97 on 20 May, while WTI was worth $63.13 on 21 May.
“Economic sentiment weakens”
Go back three months, and Brent, on 19 March, was worth $67.61 a barrel while WTI traded at $59.41 on 27 March. A year ago, on 19 June 2018, Brent was worth $75.08 a barrel and WTI traded at $64.90.
In its first report on the outlook for the oil market next year, the International Energy Agency (IEA) noted that “volatility has returned to oil markets with a dramatic sell-off in late May seeing Brent prices fall from $70 a barrel to $60 a barrel”.
The focus of uncertainty, said the IEA, has shifted from the supply side to the demand side. Earlier this year, supply disruption from Iran, Venezuela and Libya had helped to support the price.
“World trade growth has fallen back to its slowest pace since the financial crisis ten years ago, according to data from the Netherlands Bureau of Economic Policy Analysis and various purchasing managers’ indices.”
Concerns over investment
This has affected oil demand, said the IEA. In the first quarter of this year, demand expanded by just 0.3 million barrels a day, the lowest for any quarter since the last three months of 2011. “The main weakness was in OECD countries, where demand fell by a significant 0.6 million barrels a day, spread across all regions.
“There were various factors: a warm winter in Japan, a slowdown in the petrochemicals industry in Europe, and tepid gasoline and diesel demand in the United States, with the worsening trade outlook a common theme across all regions.”
Supply concerns have not completely gone away, said the IEA, citing the recent attacks on two oil tankers in the Gulf of Oman. But support for the price is more likely to come from improved economic growth than from interruptions to supply.
But meeting expected growth in oil demand “is unlikely to be a problem”, given abundant supply. The IEA concluded: “This is welcome news for consumers and the wider health of the currently-vulnerable global economy, as it will limit significant upward pressure on oil prices.
“However, this must be viewed against the needs of producers particularly with regard to investment in the new capacity that will be needed in the medium term.”
The IEA was founded in 1974 as a forum for co-operation in the wake of the energy crisis of the previous year. It has 30 member countries.