Lower Oil Demand Cause Recession Fears

During the past few months we have produced a number of YouTube videos highlighting signs of a global economic slowdown. These have ranged from Central Bank Reports, to China and Europe’s lower GDP figures, India and Turkey losing preferential tariff import status, poor vehicle sales and a host of other examples.

An area we have also touched on recently has been oil production and it is to this area we are returning because the concerns we previously expressed seem to be coming to fruition.

It is reported by Reuters today:

“World oil markets have undergone a U-turn, switching from supply-side risks like OPEC’s production cuts or U.S. sanctions against producers Iran and Venezuela, analysts said, to concerns of slowing consumption amid fears of a global recession……. As a result, crude oil prices have turned a 45% price rally in the first four months of the year into a slump of more than 15% since late April.”

“U.S. investment bank Goldman Sachs said on Wednesday that weakening economic growth and lower oil demand expectations were “the largest driver of the move lower over the past month” in crude oil prices.

And with the outlook dim amid trade disputes – especially the one that has led to an expanding exchange of tariffs between China and the United States – analysts have revised down their oil demand growth forecasts.”

For example, Energy Consultancy FGE have this week revised their global oil demand forecasts down from 1.3 million barrels a day to 1 million barrels.

Barclays Bank also said this week it has revised down its economic growth outlook for the United States, China, India and Brazil, and global oil demand down to 1 million barrels a day and we are all only too well aware that combined these countries represent three quarters of global oil demand growth.

Research firm TS Lombard likewise forecast similar in GDP terms and are concerned that an unresolved Sino-American trade war “has the potential to trigger a recession in 2020, if not before.”

China’s May crude oil imports fell by 8% from April to 9.47 million bpd while car sales fell in May to 1.91 million, down 16.4% from a year earlier, marking an 11th consecutive month of decline in the world’s largest vehicle market.

Only yesterday it was reported A “dramatic” fall in car production, and an easing of stockpiling by manufacturers, meant the British economy contracted 0.4% from the month before, meaning that growth for the three months to April slowed to 0.3%.

Though having said that, it has been reported today, that wage growth beat market and economist expectations; with salaries rising by 3.4% compared with a year ago. After taking inflation into account, wage growth was 1.4%.

Also, the UK unemployment rate remained at 3.8%, and has not been lower since the October to December 1974 period – so its not all bad news.

What is noticeable here however is that whilst unemployment levels in UK and US are at relatively low levels, they are considerably higher in Europe with Spain at 14.1%, Italy at 10.5%, France at 8.8% and the Euro area as a whole at 7.8%

Global growth appears to be declining and unemployment holding firm for now, but this could indeed change overnight. The Non-farm payrolls last Friday with 75,000 new jobs compared with a forecast of 180,000 may either be an aberration or a sign of diminishing growth. Next months figures will indeed reveal more.

So, with oil demand down, growth figures forecasted to be lower and jobs growth slowing, there is indeed something to be worried about. Of course, Central Banks and Governments can introduce financial measures to spur growth and move to lower interest rates and in some cases, such as China, currency devaluation, but this is a trend we need to watch closely – not panic over, but watch with a critical eye.

Meanwhile gold is recovering slightly at $1335 only $5 below its Friday close and silver stands at $14.81 some 21 cents below its Friday’s close. But do notice the gold to silver ratio has now passed 90:1 as we predicted – in fact standing at 90.15 and we are expecting to see a GSR of 91 quite soon.