West Texas Intermediate continues its bearish trend amid signs of economic weakness in most of its major consumers. Data released yesterday showed below expectations economic growth in Germany, slip into recession by France, Italy performed worse than forecast and the U.S. showed slowdown in the industrial sector. This and the cut estimate of Chinas GDP growth by JPMorgan & Chase Co. backs the sentiment about further lowering of fuel demand by its major consumers, which led to price fall for the fifth time in six days.
David Lennox, a resource analyst at Fat Prophets in Sydney explained: “All the key players on the demand side basically see muted growth. That will put significant downward pressure on crude prices. The EIA numbers, especially diesel, have shown for the last couple of weeks a weakening trend.”
A short-term positive sign yesterday was the U.S. oil reserves report, which showed a 624 000 barrels inventory decrease. This led to a temporary increase in WTIs price bringing it above $94 followed by a retreat today awaiting the upcoming economic data. Scheduled to be released May 16 is the american Consumer Price Index, numbers on Building Permits, Initial Job Claims, Housing Starts, Philadelphia Fed Index and the Natural Gas Storage. Positive news above estimates are expected to bring optimism about the economy and future fuel demand.
On a side note, Clyde Russel, a Reuters market analyst expresses an opinion, that there is no way for Chinas oil demand to be down 12% in four months. According to him Chinese refiners have been running down inventories and undertaking maintenance at plants in the last 2-3 months, thereby depressing the oil demand numbers. Implied demand is calculated by adding net import of refined oil products to the refined crude, excluding changes in inventories, which are rarely disclosed by the government. Therefore it is quite possible that the Asian nations fuel demand has not lowered that much. The market analyst also predicts that even if numbers are still a bit low for this month, demand should start to increase from June on and peak in the summer, based on increased traveling and construction activity. This means that after maintenance period is over and if domestic output remains at the predicted levels, refiners should restock their inventories, leading to an increased demand, import and rise in trading prices.
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