Crude Trades Flat as Expert Challenges Perception of Economic Downturn

Thursday July 4, 2019

Less than 24 hours after a Bank of America-Merrill Lynch analyst warned that the crude market could be stuck in a rut of rallies and declines for years to come, crude prices on Thursday took yet another about-face and declined, albeit modestly, due to a smaller-than-expected draw on U.S. crude stockpiles and ongoing worries about the global economy.

Brent settled down 52 cents - or 0.81 percent - to $63.30 per barrel after closing up 2.3 percent on Wednesday; West Texas Intermediate declined 54 cents - or 0.94 percent - at $56.89 per barrel after closing up 1.9 percent on Wednesday.

The source of trader discontent this time out was the U.S. Energy Information Administration reporting a weekly decline of 1.1 million barrels in crude stocks, significantly less than the 5 million barrel draw reported by the American Petroleum Institute earlier in the week.

Government data also showed that new orders for U.S. factory goods fell for a second straight month in May, thus adding to the perception that oil demand could be slowing amid a weakening economy.

But given that the crude market is largely governed by sentiment in the form of fear these days, it's not surprising that at least one sober-minded analyst would break rank and question the rationale behind the idea that the global economy is waning.

Tamas Varga, senior analyst at PVM Oil Associates, wrote, "The Shanghai Composite Index is around the same level as when Donald Trump occupied the White House; it is also worth remembering that global GDP growth, albeit revised down lately by the IMF, is still expected to be a healthy 3.3 percent this year and 3.6 percent in 2020.

"Fears of recession? What recession?"

Stephen Innes, managing partner, Vanguard Markets, remarked, "Tossing aside the short-term nature of fluctuations around the inventory data, it's impossible to escape the economic reality that we are in the midst of a global manufacturing downturn."

This kind of reasoning puts into question the validity of comments made earlier this week by Mary Ann Bartels, head of ETF strategy at Bank of America-Merrill Lynch; she told CNBC television that "I think one of the biggest risks that doesn't get talked enough about ... is that commodities have gone into a bear market, and what I mean by that is they've gone into a trading range that can last several more years.

"That means you get great rallies, but you also get great declines, and that the trend just tends to be flat."