The International Energy Agency reduced its forecast for global oil demand growth this year by 300,000 barrels per day, saying “escalating trade tensions have negatively impacted the economic outlook.” The new growth estimate is 730,000 bpd.
Analysts across the industry have also been cutting their expectations, which makes sense — a China-U.S. trade war means less oil is needed to fuel cargo ships, tractor-trailers and a whole lot of other things that carry products around the world.
In an already oversupplied global oil market, this isn’t good news for producers, who have seen a slump in prices. And, in case you forgot, the U.S. is the biggest oil producer in the world and a net exporter of crude.
With all the uncertainty right now, independent oil analyst Tom Kloza is sure about one thing: We won’t be seeing $100 barrels of oil any time soon.
“The fear of a trade war is hamstringing oil demand,” he said.
The price of West Texas Intermediate is hovering around $60 per barrel, which is not low enough to kill the U.S. oil patch. But it’s not exactly giving off “Drill, baby, drill!” vibes.
“Sixty dollars per barrel WTI puts growth at risk for U.S. oil producers,” said Rystad Energy analyst Matthew Bernstein.
If prices dip even lower? “Fifty dollars WTI, frankly, puts their business model at risk,” he said.
Which is plausible if we see a full slate of tariffs hit global trade. “That has really consequential effects for U.S. oil output,” Bernstein said.
But wait a minute — don’t lower oil prices tamp down inflation? Yes! However, fuel costs are a smaller percentage of consumers' budgets than they once were. “This is primarily the result of just more fuel-efficient vehicles,” said Garrett Golding of the Dallas Federal Reserve Bank.
It’s also important to consider why oil prices have dipped.
“We're seeing low oil prices, but we're seeing low oil prices because we're seeing an economy that's clearly stumbling,” said Tom Kloza.
So it’s looking like a good year for consumers at the pump — but not necessarily their 401(k)s.
