Excess raw materials and falling demand are the main enemies of the oil market

According to experts, the past week was the worst for the oil market since the beginning of this year. The reasons for this is that experts believe the protracted trade conflict between the US and China, as well as the decline in global demand for black gold, and concerns about a possible surplus of raw materials.


Prices for black gold collapsed primarily due to the escalation of the US-China trade war, analysts emphasized. Last Wednesday, May 22, the Energy Information Administration of the United States Department of Energy (EIA) announced an unexpected increase in oil and gasoline reserves amid growing production. Based on these data, the large investment bank Standard Chartered has calculated the bull-bear index, an indicator that determines the strength of the trend and the probability of its change in the oil market. In this week, this indicator has made 100 points, which shows the weakest data for the last six years.

According to analysts, the decline in the black gold market was largely due to numerous interruptions in oil supplies and heightened tensions in the Middle East. Many experts believed that a sudden "bearish" turn in the oil market increases the chances of prolongation of OPEC+ production cuts for this year.

Fears about the slowdown of the global economy also lead to a decrease in demand for oil, experts reminded. According to Bloomberg, small Chinese refineries reduce the processing of raw materials due to the growing oversupply of gasoline. The increase in stocks is a consequence of the weakening of demand and the negative impact of a trade war on the Chinese economy.

The US economy is more stable as its performance is quite strong. In the first quarter of 2019, a significant increase in GDP was recorded and unemployment in the United States is at a historic low.

If economic growth weakens, experts predicted a sharp drop in demand for crude oil. According to the International Energy Agency (IEA), global demand for black gold increased by in the first quarter of this year by 640 thousand barrels per day. This is much less than the previous estimate of growth at 1 million barrels per day. Lower than expected growth rates led to an oversupply of 0.7 million barrels of oil per day, analysts emphasized.

IEA experts have reduced the demand forecast for this year in the expectation that it will grow in the second half of 2019. However, some experts believe that this is unlikely given the escalation of the trade war and the global sale of shares.

The material has been provided by InstaForex Company - www.instaforex.com