Crude Oil Prices May Fall as Growth Fears Return, Rate Cuts Pause

CRUDE OIL PRICE FORECAST: BEARISH

  • Crude oil prices idle amid US-China trade war, Brexit uncertainty
  • Returning global slowdown worries might revive selling pressure
  • OPEC may be an afterthought as US output continues to balloon

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Crude oil prices have been idling in a choppy $50-62/bbl range since the middle of the year. The standstill appears to reflect a broad range of uncertainties around the outlook for demand. Investors are weighing whether a dovish pivot in worldwide monetary policy led by the Federal Reserve will be enough to countervail a global economic slowdown.

Leading PMI survey suggests growth registered at near-standstill in October, extending a steep downturn from a peak in March 2018. The ongoing US-China trade war and a handful of copycat conflicts – like the recent spat between South Korea and Japan – have accounted for some of this. Uncertainty about the way forward for Brexit seems to be another contributing factor.

STEADY STREAM OF EVENT RISK TO DRIVE OIL PRICE VOLATILITY

A lasting trend will probably struggle to emerge in this space. Nevertheless, a steady barrage of headlines informing these twin narratives along with a potent dose of scheduled event risk promise volatility in the coming week. OPEC officials will meet ahead of next month’s review of the cartel-led output cut scheme, the EIA will update monthly supply and weekly inventory figures, and Fed Chair Powell will speak.

On the economic data front, readings on US consumer confidence, GDP and inflation seem worth watching. Broadly speaking, realized outcomes on US news-flow have cooled relative to baseline forecasts in the past two months, suggesting analysts’ models are overstating the economy’s vigor. More of the same might sour investors’ mood just as global equities hover near record highs, tilting the risk/reward balance.

ECONOMIC GROWTH FEARS MAY RETURN JUST AS FED RATE CUTS PAUSE

In all, this seems to suggest the path of least resistance leads lower. Any saber-rattling from OPEC might fall on deaf ears as US output sets another record high at 12.8 million barrels per day. Meanwhile, US inventories have rebounded to a four-month high in a move eerily parallel to the cooling in overall economic data cycle, warning that a tangibly worrying pivot in the business cycle might be afoot.

Near-term selling pressure may emerge to the extent that incoming statistical releases reinforce this danger. For his part, Mr Powell will probably stay on message, signaling rate cuts are on pause for now. That will be met with groans of disappointment if recent cautious optimism is already buckling under the weight of renewed global growth concerns.

— Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivakon Twitter

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