Oil Price: cloudy outlook with bearish tendencies – By Hemantha Yapa Abeywardena
The slow growth rate of China’s GDP, around 5% according to the latest forecasts, coupled with the falling gas prices, is clearly inhibiting the potential rise of global oil prices.
The latest data from China’s Bureau of Statistics, the world’s second largest economy is heading towards its own new ‘normal’ – a relatively modest growth around 5%.
Although China still manages to keep its economy growing despite many headwinds, the concerns on many fronts eclipse the growth picture: its frosty relationships with the West, uneasy diplomatic relations with the neighbours, especially around the South China Sea and of course, its troubled neighbourly relationship with India, the world’s third largest consumer of oil, to name but a few.
The latest concern over China’s growth comes in the wake of the latest manufacturing data; in June, the manufacturing PMI index was 49.5%, recording no change from the corresponding value in May. Only in March and April this year, did it go above the threshold, 50%, only to come down in later months.
In proportion to the falling manufacturing output, there has been a corresponding loss of demand for oil, explicitly indicated by the weaker refinery output. Meanwhile, the prices of LNG, liquified natural gas, are falling too. Natural gas, a competitor to oil in some sectors, could bolster the price of oil, if the prices of the former are on the rise. Since there are ample gas stocks in Europe and it is in the warmer summer season, the likelihood of seeing a surge in gas prices is highly unlikely. That means, the influence of gas prices on the price of oil is fast becoming irrelevant .
In addition, the impact of the wars in Ukraine and the Middle East, and the role of the OPEC+ on the oil prices are becoming hardly noticeable too; these factors have clearly gone past their respective peaks in influencing the commodity markets.
All in all, the outlook of the commodity in the short-term is going to be bearish, as none of the significant factors that usually influences the price of oil has the potential to break the ice, reverse the trend and get it out of static phase.
