November 15, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary from Samer Hasn, Senior Market Analyst at XS.com.
Oil prices resumed their notable decline today with more than 1.2% declines for both Brent and WTI.
The downward trend in oil prices comes amid continued concerns about demand for crude after larger-than-expected stockpiles in the US and the International Energy Agency’s downward revision of its demand forecast for 2025. While the weak outlook for crude demand growth comes from concerns about the future of the Chinese economy in particular, especially with the anticipation of an escalation in the trade war with the return of Donald Trump, which may keep prices under continued downward pressure.
Also, the continued decline in hopes of a possible interest rate cut by the Federal Reserve next year may keep crude prices vulnerable to further declines with the strength of the dollar, and this was after a series of inflation figures this week and Jerome Powell’s cautious statements.
In detail, companies’ crude oil inventories rose last week by 2.1 million barrels according to the Energy Information Administration, which was more than expected. On the positive side of demand, gasoline and distillate inventories fell more than expected by 4.4 million barrels and 1.4 million barrels respectively.
These figures come after the International Energy Agency’s November report, in which the agency lowered its forecast for crude demand growth from 998,000 to 990,000 barrels per day next year, due to slowing demand in China and an acceleration in the shift towards cleaner energy sources. The agency also expects supply to exceed demand by more than 1 million barrels per day next year.
China’s National Bureau of Statistics also reported that refinery throughput fell 4.6% year-on-year in October, another negative signal about the state of demand.
The negative outlook for crude demand from its largest importers comes amid concerns about the damage that could be done to the Chinese economy as the trade war with the US escalates with the return of Trump. These concerns come in conjunction with market pessimism about the effectiveness of support packages in boosting growth and weak domestic demand.
While markets are trying to know what China might do to contain this escalation of the trade war, which could have greater implications than during Trump’s first term, The Wall Street Journal reported, citing economists.
While China may seek to flood non-U.S. markets to offset the decline in exports, this could be met with anti-dumping measures from many countries that are struggling with competition from Chinese goods, according to The Journal as well. This could leave China with the option of supporting its domestic economy, which has weak demand and consumption, to compensate for the decline in exports.
On the other hand, as The Journal reported earlier this week, despite the appointment of hardliner candidates toward China to positions in the next U.S. administration, this still leaves room for dialogue on the two countries’ trade terms.
China may also resort to courting US businessmen to pressure the Republican administration to ease the trade escalation. Therefore, the restrictions that may be imposed on China may not be as severe as Trump talked about during his campaign.
In addition, Thomas Friedman, in an opinion piece in The New York Times, believes that China will not just accept what Trump might do in his second term as it did not during his first, and he says that the world is more complicated than what Trump portrayed during his election campaign. Freeman cited the rise of Huawei despite the restrictions imposed on it to prevent it from accessing advanced US technology, and to now become a leading global supplier of telecommunications equipment.
Finally, returning to the US, on the economic side, we see more pessimism about the possibility of cutting interest rates next year, after Jerome Powell’s speech yesterday, in which he said that the health of the economy gives the central bank comfort in determining the pace of rate cuts. He also said that the economy is not giving signs that we urgently need to cut interest rates.
Based on this cautious speech from the Federal Reserve, and in addition to the return of inflation to accelerate again last October, the probability of a 25-basis point rate cut next January has decreased to only about 17% after exceeding 60% more than a month ago, according to the CME FedWatch Tool. While a return to the higher rates narrative for a longer period would restore downward pressure on crude prices due to the strength of the dollar on the one hand and the impact that high borrowing rates could have on global economic growth on the other.
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