Another Weekly Loss For Crude; Expert Predicts "Death Knell" If U.S. And China Don't Reconcile

Friday June 14, 2019

As earlier predicted by analysts, the relatively muted response to oil tanker attacks in the Gulf of Oman this week - grounded in the belief that it will generate nothing more than increased sabre-rattling between the U.S. and Iran - caused crude prices on Friday to climb marginally.

However, with West Texas Intermediate settling 23 cents higher at $52.74 per barrel and Brent rising 70 cents to $62.01, the commodity was still on track for yet another weekly loss - and contributing to a fall of more than 15 percent since the start of April.

John Kilduff, founding partner at Again Capital, rationalized Friday's lukewarm performance by pointing out that "The deteriorating demand outlook is holding back prices, despite these tensions.

"We are stalemated here."

The persistent worry that the world's economy will soon stall - based almost exclusively on disappointment that the U.S. has not yet reached a trade breakthrough with China - was kindled even more on Friday by the International Energy Agency, which cited the trade concerns as the reason for slashing its estimate for global oil demand growth for the second consecutive month.

The agency now expects demand growth to reach 1.2 million barrels per day (bpd) this year, down by 100,000 bpd from the IEA's previous projection.

But the market should improve in 2020, with demand growth climbing to about 1.4 million bpd, according to the IEA, which stated, "A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock, and the OPEC countries are sitting on 3.2 million bpd of spare capacity."

For his part, Jurrien Timmer, director of Fidelity Investments, conceded that demand growth has slowed "but is still reasonably okay," and he predicted oil prices will continue to move higher, but "not in a material way" since the U.S. can act to counter high prices.

But prognostications these days never stray far from the topic of the U.S./China trade war, and Stephen Schork, founder of The Schork Report, helped end the week on a gloomy note by saying current oil prices "are really scraping the bottom of the barrel....oil prices right now are too low, [and] no deal [between China and the U.S.] plus further confusion with regard to economic growth could be the death knell for oil to break that psychological $50 barrier: that would be $50 in WTI, and mid-$50s for Brent crude oil."