Speculation of a Potential Recession is Growing
August 16, 2019
The market continues to be impacted by so much uncertainty with a host of issues and concerns surrounding this market. Traders continue to struggle with weak economic data and the impact that could have on demand, the trade war with China, OPEC+ talking about cutting more production, reports of possible recession, and still strong US crude oil production.
There was some positive news for US economy as retail sales for July came in much higher than expected yesterday, rising by 0.7% from June. This was a much higher number than the 0.3% expected by economist. Retail sales are a big driver of US consumer spending which accounts for 66% of the US GDP calculations. Economist raised their Q3 US GDP estimate by 0.2% up to 2.1% based upon the good retail sales.
The yield on the 10-year US Treasury note fell below the 2-year rate on Wednesday, which has been a reliable indicator of a recession 12 months following. This spurred recession fears in the US but the 10-year note would have to stay below the 2-year not for an extended period of time in order to be a good indicator a recession is forthcoming. The 10-yar note did trade back above the 2-year note yesterday and for a recession to occur, retail sales would fall for at least three consecutive months but as mentioned above retails sales for June were strong.
According to Gibraltar Chronicle, Gibraltar released the Iranian tanker, Grace 1, which was seized on July 4th on the suspicion it was shipping 2.1 million barrels of crude oil to Syria in breach of European Union sanctions. The owner of the Iranian tanker said the ship will head to Mediterranean ports. Gibraltar decided to free the tanker, but did not immediately indicate when or if the ship would set sail after the US launched a new, last minute legal bid to hold it. Earlier, the US applied on Thursday to seize an Iranian tanker in Gibraltar, halting its expected release at the last minute and preventing a possible swap for a British-flagged tanker held by Iran. A spokesman for the Stena Impero tanker, seized by Iran last month, said the situation remained the same with the Stena Impero and that they company awaited further developments from the UK and Iran.
BNP Paribas forecast the average Brent price in 2019 and 2020 at $62 per barrel and $54 per barrel, respectively. It forecast the price of WTI in 2019 at $55 per barrel and $51 per barrel in 2020.
OPEC lowered growth in its crude oil demand forecast for this year by 40,000 bpd to 1.1 million bpd. It left nest year’s growth at 1.14 million bpd.