Oil prices plunged in an epic collapse after OPEC failed to respond to President Donald Trump’s tweet  that “ Hopefully, Saudi Arabia and OPEC will not be cutting oil production.” The market tanked as they felt that OPEC remained silent and that silence was deafening. The market was saying that OPEC may not have the guts to stand up to the President, who basically has been dictating OPEC policy with his twitter account. It did not help that OPEC lowered their oil demand forecast and raised their production forecast in a very nervous market. Yet, today oil is trying to break the record 12 day losing streak on reports that OPEC will defy the President and cut production by 1.4 million barrels. Yet, the question is will it be too little too late to change the mood of the market? 

The price crash is causing a loss of confidence in the broader market. Oil price crashes in the past have sometimes signaled a coming recession in global markets. While lower oil prices can be good, crashing oil prices can signal a sharply slowing economy. There are real concerns that if this price crash in oil continues, that it is signaling big problems. Yet, if we stabilize here, which we should, then the price break should spur a demand increase that will see supplies get too tight again. Our take is that we should be near the bottom. Our take is the talk of a global slowdown is being overstated and we feel we will see a sharp rebound.

In fact, in the new International Energy Agency report today they say that the outlook for global oil demand growth is largely unchanged at 1.3 mb/d in 2018 and 1.4 mb/d in 2019, as a weaker economy is largely offset by lower oil prices. OECD demand is expected to increase by 355 kb/d in 2018, slowing to 285 kb/d in 2019.

The IEA says that oil demand is slowing in several non-OECD countries, as the impact of higher year-on-year prices is amplified by currency devaluations and slowing economic activity. Our non-OECD demand forecast has been revised down by 165 kb/d for 2019.