Saturday, October 3, 2015

Finance: If The Global Economy Is Getting Worse, Why Doesn`t The Price Of Oil Fall Anymore?

(Drivebycuriosity) - There are a lot fears that the global economy is getting worse and that we might head to a new recession. But the price of oil doesn`t respond. Yesterday  Brent Crude, the gauge for the global oil market, gained 0.9%, and closed at, $48.13, WTI, the barometer for US oil, climbed 1.8% to $45.54. Yesterday`s closing price is about $2 above the low from January ($46.59). So, since January oil didn´t get any cheaper! (trading seekingalpha).

From summer 2014 through January 2015 the mother of all bubbles had popped because the oil price was way higher than the production costs which caused a massive oversupply (I had explained that here driveby). The oil market is still oversupplied because a climbing production in Russia, Iraq, Saudi Arabia and other countries is overcompensating a slight decrease of the US oil pumping (bloomberg).

If the global economy is as bad as the media tell us the price of oil would fall because the demand for the commodity would shrink. So, what is holding the price of oil up? I think that the global economy is stronger than the media tell us. Maybe the solid retail sales (US plus 2.2% YoY trading; Euro zone plus 2.7% YoY reuters ; China plus 10.8% YoY abc ) give a better picture of the global economy than the erratic manufacturing indices.

We also got reports that the US car sales are soaring (usatoday) and that US consumers burnt more gasoline in the summer season (inside   advisor). The International Energy Agency (IEA) claims that "global oil demand rising fastest in five years" (fuelfix).

A rising oil demand certainly does not fit to a shrinking global economy. So, forget the gloomy headlines.

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