Crude Futures Slide Into Bear Market

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent extended lower Tuesday afternoon, with West Texas Intermediate crude falling below $54 in the market-on-close trade amid growing concerns the US-China trade war will slow global growth into recession and dent fuel demand.

The NYMEX September WTI contract retreated $1.06 to settle at $53.63 per barrel (bbl), the lowest since the mid-June and down roughly 20% from its April peak. ICE October Brent crude futures shed $0.87 to $58.94 bbl, falling more than 20% from its April peak, which pushed the contract into the bear market.

NYMEX September ULSD futures settled 1.16 cents lower at $1.8240 gallon, a 1-1/2 month low on the spot continuation chart, while the September RBOB contract settled 3.07 cents lower at $1.6873 gallon, deepening losses from last session.

Oil futures came under selling pressure once again Tuesday, seemingly unable to shake off another round of escalating tensions in the U.S.-China trade war. The U.S. Treasury Department officially designated China as a currency manipulator on Tuesday after Beijing the prior session depreciated the yuan to a multi-year low against the U.S. dollar, which is considered a violation against the rules of World Trade Organization. Even though Beijing raised the USD/yuan exchange rate above the key 7 reference point on Tuesday, the shock of China's broad swipe against U.S. tariffs still lingers. Market participants view the broad counter-measure employed by Beijing as more worrisome than targeted tariffs against U.S. exports, fueling concerns of a looming global recession if the trade conflict escalates further.

Tuesday afternoon the U.S. Energy Information Administration for the third consecutive month revised lower its forecast for world oil demand in both 2019 and 2020 and now sees an oversupplied global market through next year, the agency reported in its latest Short-Term Energy Outlook. EIA sees global oil production outpacing demand by 110,000 barrels per day (bpd) in the current year, while widening the gap by sizable 280,000 bpd in 2020. The government agency said it expects continued builds in global oil inventories, up 0.1 million bpd in 2019 and 0.3 million bpd higher in 2020.

"The outlook for global economic growth, however, continues to decline along with expectations for petroleum demand growth," said EIA in its August STEO.

Meanwhile, markets await weekly supply data from American Petroleum Institute set for release Tuesday afternoon at 4:30 p.m. EST, while the EIA will publish official figures midmorning Wednesday. Traders will pay close attention to this week's inventory levels, with analysts expecting an eight-weekly draw in domestic crude supplies, falling by 3.8 million bbl for the week ended Aug. 2. Gasoline stocks are seen down 1.4 million bbl and distillate inventories are seen 450,000 bbl lower.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)

Liubov Georges