Negative Global Outlook Cools Energy Demand
October 4, 2019
The negative outlook for global economy and the concern about recession and with it reduced energy demand continue to weigh on the energy market. “We see the global economy going through a gradual, synchronized slowdown, “David Lipton First Deputy Managing Director at the International Monetary Fund said this week. This was on news that the WTO had cut is trade growth forecast for both 2019 and 2020 siting increased trade tensions and macroeconomic risks that are tilled to the downside. The EIA inventory report this week was bearish for crude as there was a bigger build than expected in crude stocks. Also, this week the market got the bad ISM manufacturing number adding to the negative outlook.
The ISM non-manufacturing index (service sector) fell to a reading of 52.6 for September down from 56.4 in August. This was much worse than the expectation of a 55 number. This is another bad economic data point, and this held more negative impact as the ISM manufacturing data was bad this week also. If the service sector (non-manufacturing) number is good, it can offset manufacturing number but with both seen as bad it helped to put more selling into equities and energy.
Russia’s Rosneft set the euro as the default currency in all its export contracts including crude oil, oil products, petrochemicals, as well as, liquified petroleum gas. This is a move to get away from the contract traded in US Dollars and avoid sanctions.
With all these negative outlooks it is raising the expectations that the Fed will cut interest rate again this year. This is a case were the news is so bad it is good.
The non-farm payrolls number just put out this morning showed that 136,00 new jobs were create in September versus the expectation of 145,000. This is being seen as another negative for the economy, but will it be added to the bad news so now the Fed will have to act.
The energy market is trading higher here in early market trading the key will be can it sustain the upside thought out the day and close strong. That is what the bulls need to have a chance a t more upside next week. If the early upside is just short covering for the weekend and price pulled back before the end of the day it would give the market to start next week lower tanking a run at key support levels.