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Oil plunges for fear of weak demand

The oil price fell again on Wednesday, which falls on getting the demand for oil and growing fear of an economic slowdown.

MKB reported another jump in crude oil inventories last week with 2.2 million barrels, which contributed to exacerbating sales. A number of inventory gains have dampened the fear of weak demand at a time when other economic indicators are flashing red.

Demand weakened largely due to a deceleration in the world economy. Weak indicators still appear from China and Europe, as well as in the US. As John Kemp points out for Reuters, large trading bureaus around the world show a sharp slowdown in global trade, with freight volumes falling significantly compared to last year, suggesting that the global economy is on the verge of a recession.

"Demand expectations for 201

9 have so far been unrealistic," said Mark Maclean, CEO of Commodities Trading Corp., in a Bloomberg interview. "China has slowed down faster than expected and the trade war still has a significant impact, the EU will not be a pocket for demand growth this year and the US is also problematic."

Meanwhile, refining of margins is cratering in northwestern Europe, offering more evidence of stagnant demand, according to Bloomberg. Prices of products such as petrol and naptha have fallen faster than for crude oil. A downbeat market for naptha suggests weak demand for plastic. Bloomberg noted that the margins on paraxylene, a substance needed in the manufacture of clothing and water bottles, are close to a five-year season. Similarly, ethyl margins used in plastic bags have fallen into negative territory. Related: Small crude building sends oil lower

The deterioration of the oil requirements finally gets recognition from large oil forecasters. MKB said on Tuesday that global global demand from 2019 would be lower than previously expected. In the agency's short-term energy outlook, it lowered its demand estimate to 1.2 million barrels per day (mb / d), nearly 200,000 bpd lower than last month's forecast. "MKB's lower 2019 Brent price path reflects increasing uncertainty about global demand for oil," says the agency and justifies a downgrade of $ 3 per barrel. At the same time, US shale production is expected to grow by less than expected due to lower prices.

But a series of Wall Street banks is much more pessimistic than EIA and IEA. Morgan Stanley sees demand grow by 1 million barrels per day (mb / d). JPMorgan Chase puts the growth of 800,000 bpd for 2019, nearly 40 percent lower than the IEA's estimate of 1.3 mb / d. deeper sliding in the oil price. "Extending the production agreement for another six months should prevent oversupply in the oil market and support a price recovery in the second half," wrote Commerzbank in a note.

Saudi Arabian and Russian officials apparently discussed a scenario where oil could fall below $ 40 a barrel, but it seems unthinkable that the group would fail to prolong production cuts. "A scenario when they do not extend cuts will not be sweet," said Warren Patterson, trading strategist at ING, to the Wall Street Journal. Related: Escalating Trade War Signals More Pain For Oil

The analyzes at Goldman Sachs probably look like an extension that is likely, with key OPEC + members (ie, Saudi Arabia) balancing the market each month The foundation goes forward – ramp production up or down depending on what the market needs. It would suggest that the group go a long way to maintaining a balance between supply and demand. Goldman stuck with a price forecast of $ 65.50 a barrel for the third quarter.

However, the Investment Bank acknowledged that a sharp decline in demand would throw this scenario out of the window. OPEC would not be able to cut fast enough to stick to the downturn in demand. "OPEC production adjustments have historically not been able to match the rate of demand declines during the recession, leading to rising stocks, accounts, and lower prices," wrote Goldman analyst before adding that such a result still seems unlikely.

Worrying, Trumpadministration's ongoing commercial war with China, which could still escalate into a new phase. Earlier this week, Trump said he could raise tariffs on the remaining $ 300 billion of Chinese imports by Xi Jingping refusing to meet him later this month in Japan on the side of the G20 summit. He added that he could introduce a 25 percent fee, or "much higher than 25 percent".

By Nick Cunningham from Oilprice.com

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