Wednesday saw forecasts for both calamitous demand growth and a market rebound: File Image/Pixabay
With the next meeting of the Organization of the Petroleum Exporting Countries (OPEC) - and the expected relief in the form of the cartel extending its production cuts - still over two weeks away, crude traders were once again swayed by the worry that global inventories exceed demand, and as a result prices on Wednesday once again dropped, this time by a sizeable 4 percent.
Stoking their concerns was the U.S. Energy Information Administration reporting that domestic crude stockpiles rose unexpectedly for the second week in a row, climbing 2.2 million barrels last week after analysts had forecast a decrease of 481,000 barrels.
Even though analytical forecasts are almost always wrong and stockpiles have a way of depleting during summer, Brent on Wednesday fell $2.32, or 3.7 percent, to settle at $59.97 per barrel, while West Texas Intermediate dropped $2.13, or 4 percent, to $50.72.
This will likely be the worst year for oil demand growth since 2011
Phil Flynn, analyst at Price Futures Group, remarked, "Its definitely a market that is still in some disbelief of these inventory builds, and they're not going to be able to look beyond it; it's been more difficult to guess what the EIA is going to add every week."
Adding to the gloom on Wednesday were banks such as Barclays, which revised down its economic growth outlooks for the U.S., China, India, and Brazil, and cut its oil demand growth forecast by 300,000 barrels per day (bpd) to 1 million bpd.
It stated, "There is potential for further downside to demand, which means this will likely be the worst year for oil demand growth since 2011."
Similarly, Bank of America Merrill Lynch said "global oil demand growth is running at the weakest rate since 2012" - however, it estimates growth to be bigger than that predicted by Barclays, around 1.2 million bpd for 2019.
But not all the experts foresee grim times ahead. Flynn insisted that "The 'death of demand growth' is greatly exaggerated, despite the challenges in the global economy," and he added that measures by banks to stimulate growth along with the recent slide in oil prices could easily rekindle demand.
Goldman Sachs is another agency that believes the current hand-wringing over demand and the economy may be over-justified: it stated, "While economic activity has recently come in below our economists' expectations, it remains resilient, and they (the economists) don't expect that a sharp further deceleration is likely."