Fear of Weakening Demand Causes More Crude Losses Despite Global Thirst for Oil

Europe, Africa, and Asia are paying big premiums for extra supply: File Image/Pixabay

The argument of many experts that the thirst for crude is exceedingly healthy around the world was no match on Tuesday over the rising fear that escalating tensions between the U.S. and China would cause a slowdown in global economic growth and demand - and as a result, oil prices closed at their lowest level in over a month.

Brent fell $1.36 to settle at $69.88 per barrel, the lowest settle since April 4, and West Texas Intermediate dropped 85 cents to end at $61.40, the lowest since March 29.

The losses came in the wake of a Reuters poll released Tuesday showing that U.S. crude stocks were forecast to have added another 1.2 million barrels last week; and crude production in that country was expected to rise to an all-time high of 12.5 million barrels per day (bpd) in 2019 from a record 11 million bpd in 2018, according to the Energy Information Administration.

Driving the negative trading sentiment was U.S. president Donald Trump stating on Sunday that he would raise tariffs on $200 billion of Chinese goods from 10 to 25 percent by Friday if a trade deal between the two countries wasn't ratified.

No doubt to the further consternation of traders was Rick Perry, energy secretary for the Trump administration: he told CNBC on Tuesday with regards to Iran, "The smart message for our friends and allies around the world is. 'Don't do business with this people until they understand that there is a way to that you conduct yourself in the global community.'"

However, strictly from a supply point of view, a substantial number of analysts fail to see the justification in the recent slump in crude prices.

Olivier Jakob, managing director of Petromatrix, said, "There is no true sign of weakness in the physical market; you have lower exports from Venezuela, you've got sanctions from Iran, Libya which is still a risk."

Bloomberg on Tuesday noted that, "In Europe, traders are willing to pay higher premiums to secure immediate supplies of Brent crude.....the North Sea's main loading programs next month will be the smallest in years - just before northern hemisphere refineries start purchasing more oil for summer processing, [and] traders in West Africa and the Mediterranean also report bullish markets."

Additionally, Saudi Aramco is said to be ready to supply hungry Asian oil refiners with more crude, for a substantial premium, with India reportedly getting as much as 200,000 bpd in incremental supplies.