Crude Oil Continues to Suffer Lack of Demand

Alan Penny

9 October 2019

3 min read

  • Crude oil continues longer-term build
  • US extracting 12 million barrels a day
  • Economic growth slowing

Crude Oil Inventory figures out of the United States were released on Wednesday and were buried yet again. Originally forecast to be a build of 2 million barrels, the number came out at a build of 3.1 million barrels. This shows that oversupply is still an issue in the United States, which is the second-largest consumer of crude oil in the world, slightly below China. If that is going to be the case, it’s very likely that lack of demand will continue to be a major issue for this market.

it’s very likely that lack of demand will continue to be a major issue for this market

It should not be much of a surprise that crude oil continues to stutter while economic growth around the world continues to be stifled. The slowing global growth causes less need for transportation energy and other forms of energy that crude oil can be used for. Simply put, less moving machines means less demand.

Longer-term trend

The biggest problem that crude oil has at the moment is that there has been a three-month trend where expectations have been missed more often than not. Granted, this is a very volatile number that has a whole slew of possible explanations. But when you consistently start to miss on the bearish side, one has to think there’s something more to this.

Central banks around the world have been cutting interest rates, which shows concern about growth. The European Union is on the brink of a recession, and the United Kingdom continues to struggle because of Brexit. Those are two major economies that will certainly be demanding less petroleum. Beyond that, the Americans continue to pump out record amounts of crude oil. Over 12 million barrels a day is significant, and it should continue to expand from here. In fact, the United States is now a net exporter of crude oil, something that happened far quicker than people would have anticipated. Even with OPEC doing everything they can to skew the demand curve, the reality is that it doesn’t have the power it once did.

Will crude demand pick up anytime soon?

This comes down to demand. Economic growth needs to be extended, and until it is, the crude oil market will continue to be bearish. The Americans have shown absolutely no appetite for slowing down production, and they look likely to only increase it. That’s because the US economy is much more dynamic than many of the other oil-producing regions, as a large number of these are stuck with the idea of crude oil supporting almost their entire economy.

In this scenario, demand can be the only reason why crude oil goes higher. With that being the case, pay attention to GDP figures around the world, which will give you an idea as to where we are going next. Currently, things don’t look good, so crude oil should continue to be sold off every time it tries to rally for any significant amount of time.

Written By
Alan Penny

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