Oil prices have remained soft this month despite rising geopolitical tensions and threats of supply disruptions, the latest sign that investors fear trade friction will hit global growth and sap demand for crude.
Crude jumped after the U.S. blamed Iran for attacks on two tankers in the Gulf of Oman last week, but struggled to hold those gains despite fears of a broader military confrontation in the Persian Gulf and the potential for trade disruptions in the Strait of Hormuz. More than one-third of the world’s seaborne crude oil is shipped through the strait.
The muted response echoes a broader downdraft in prices for a broad range of commodities that have come under increasing pressure since trade talks between the U.S. and China broke down late last month. Besides being the world’s second-largest economy, China is also a top consumer of many raw materials, from nickel to cotton.
An additional factor has been a surge in U.S. stockpiles to multiyear highs, driven by weak refinery demand and a shale-production boom that has helped bring prices down from triple-digit levels last seen five years ago. Higher output has made prices less responsive to disruptions in bottleneck areas such as the Gulf of Oman, analysts said, keeping the focus on a slowdown in consumption.
“What’s surprising is how the demand sentiment has changed over the last few weeks,” said Andy Lipow, president of consulting firm Lipow Oil Associates. “We’re seeing slowing of growth at the same time that the market focuses in on record amounts of shale production.”
Brent crude, the global price benchmark, posted its third weekly drop in four weeks even after the tanker attacks and fell again Monday. Brent is 18% below its April peak and down about the same amount in the past year. U.S. crude oil is in a bear market, down more than 22% since late April.
U.S. prices are at $51.93 a barrel and near levels critical to drive profitability for some energy producers amid rising stockpiles. Inventories, which typically fall at this time of year as demand rises around the summer travel season, have climbed to their highest level since July 2017, Energy Information Administration data show.
“The reason oil prices are going down is because there’s plenty of oil, and that’s also true with a lot of commodities,” said Tim Rudderow, who manages $1.5 billion at Mount Lucas Management LP. “There’s not a shortage of anything.”
The S&P 500 energy sector is down 18% in the past year, compared with a 4% gain for the broader index. Large energy companies, including Exxon Mobil Corp. and Chevron Corp. , generally reported underwhelming first-quarter results, hurt by weaker prices and geopolitical issues that crimped profit from their refining businesses.
Brent crude is at $60.94, increasing focus on a coming meeting of the Organization of the Petroleum Exporting Countries and its allies because many OPEC nations need higher prices to sustain their economies. OPEC and partners including Russia are curbing output through the end of this month.
Meanwhile, prices for copper—a key component in global manufacturing and construction—are near their lows of the year, also hurt by rising stockpiles. Coffee stands near its lowest level in more than a decade, pressured by a wave of supply from Brazil. Trade tensions are also weighing on prices for cotton, which have fallen more than 9% this year.
Some analysts expect further OPEC production cuts and continuing supply uncertainty to lead to an oil-price rebound, helping materials prices broadly stabilize. Because of recent U.S.-Iran tensions, violence in Libya and U.S. sanctions on Venezuela, global oil-supply disruptions are now at the highest levels in almost three decades, Bank of America Merrill Lynch analysts estimate.
But in other signs of softer consumption, both the EIA and International Energy Agency lowered their estimates for 2019 global oil-demand growth last week. The World Bank earlier this month cut its global-growth forecast to 2.6% from 2.9% in January—and lowered its forecast for growth in trade.
Figures Friday showed that Chinese industrial production grew at the slowest pace since 1992 last month, while growth in fixed-asset investment also slowed from April.
“Everyone is just obsessed with demand,” said Leigh Goehring, managing partner of natural-resources investing firm Goehring & Rozencwajg Associates.
While hopes that the Federal Reserve will lower interest rates have kept stock prices near record levels, analysts say fears of excess supply and negative momentum indicators continue to keep commodities under pressure.
Commodities assets under management by active funds, including commodity trading advisers, or CTAs, fell nearly $15 billion last month to roughly $80 billion, Citigroup Inc. analysts estimate. That figure is down from a January 2018 peak of $184 billion. CTAs are largely made up of trend followers.
Supply-and-demand-focused hedge funds and banks have also scaled back commodity trading in recent years, leaving fewer traditional players to stabilize prices. The increased impact of trend followers on commodities markets means prices are more susceptible to quick shifts in sentiment, investors say.
Global revenue from commodities at the 12 biggest investment banks totaled $3.6 billion in 2018, down from $8.3 billion in 2011, according to research and analytics firm Coalition Development Ltd., which measures trading and financing revenue.
Goldman Sachs Group Inc. is the latest bank planning to cut back its commodities-trading arm, The Wall Street Journal reported earlier this year.
“We’re going through another period of intense bearishness in global oil markets,” Mr. Goehring said. “It’s been a little frustrating.”
Source： Wall Street Journal
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