- According to a Bloomberg Economics report, weak demand accounts for 70% of the decline of Brent crude since April this year.
- The Chinese economic growth has boosted the price of oil in terms of demand in recent years, but recent GDP data shows weak growth.
- Is it impossible to see oil below $30 again? Never say never.
- This idea was discussed in more depth with members of my private investing community, The Lead-Lag Report. Get started today »
We need to face it, as a nation we have a reliance on petroleum. - Lisa Murkowski
That reliance recently faded away. The energy sector (XLE) is facing a major crisis as long as oil prices remain depressed. Weak Chinese GDP and oversupply of crude are putting pressure on oil prices in the low $50 range.
As mentioned in one of the last Lead-Lag Reports, oil markets are retreating after spiking earlier this month when Saudi oil fields were attacked. Ample supply and lack of demand are putting pressure on prices.
That trend is not going to go away anytime soon. According to a Bloomberg Economics report, weak demand accounts for 70% of the decline of Brent crude since April this year. The trade war's impact is undeniable.
Chinese economic growth has boosted the price of oil in terms of demand in recent years, but current GDP data shows weak growth. So weak, that Q3 2019 growth was one of the weakest in the last 30 years.
In the meantime, inventories in the US are on the rise. The US-based Energy Information Administration (EIA) estimates the rising inventories trend to continue.
On top of that, the International Energy Agency (IEA) reveals a stunning change in the capital cost in various energy-related sectors, with the trend continuing in 2019. Guess where the costs keep rising? Upstream oil and gas.
I recently emphasized the troubles in the oil market and argued for a bearish break. However, the perspective was short and medium term without looking at the bigger picture. I argued for the deflationary component of lower oil prices and the troubles that bring to central bankers and monetary policy.
As it turns out, oil does sit at an inflection point. A quick look at the last 20 years reveals a troubling trendline. For many, the price seems to coil for a break higher. That might be the case.
This article was written by Michael A. Gayed. An author on Seeking Alpha and founder of the Lead Lag Report.
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