Juggling Dynamite

Last week saw an escalation of tensions between Iran and the US as well as the UK.  In another time, crude prices would have spiked on the news.  This time, crude fell on the week and remains lower over the past 1, 3, 5 and 10-year timeframes.

This story is about weakening demand as the global economy turns down, but it’s also about soaring supply thanks to technological innovation that is not going away.

See Persian Puzzle for Oil Prices. Crude prices have been falling despite incidents involving Iran as pessimism about demand outweighs concerns about supply.

The International Energy Agency is revising its demand-growth forecasts as trade tensions and slower Chinese economic growth take a toll. IEA Executive Director Fatih Birol said the agency will lower its demand-growth forecast for 2019 to 1.1 million barrels a day from the 1.2 million barrel forecast it made only last month and its original 1.5 million barrel forecast.

Meanwhile, U.S. production isn’t missing a beat. The U.S. Energy Information Administration reiterated in its most recent short-term outlook that the U.S. will become a net exporter of crude some time in the fourth quarter of this year. Average daily production is seen rising to 12.4 million barrels in 2019 from last year’s record 11 million barrels a day. In other words, U.S. supply growth alone will exceed global demand growth.

In other energy innovation news see:  Largest ‘building-integrated’ solar cell installation in the country coming to Edmonton Convention Centre.

Danielle was a guest with Jim Goddard on Talk Digital Network talking of about recent developments in the world economy and market.  You can listen to an audio clip of the segment here.

For more see FT Global freight slides near recession levels:

The US Cass Freight Index fell for the seventh month in June and is now down 5.3pc over the past year. “More and more data are indicating that this is the beginning of an economic contraction,” said the June report by Cass Information Systems.

The freight group said the slowdown has been building for months and can no longer be explained by one-off distortions. It said the shipments are a reliable leading indicator of future manufacturing and construction. Declining volumes on this scale suggest that the US economy is heading for negative GDP readings as soon as this quarter. This would hit equity markets like a thunderclap.

 

 

As I pointed out in Transports leading the stock market and economy lower, the Dow Transport Stock Index has not confirmed strength in the broad market indices since December 24th. In fact, the transportation index is at the same level today it as it was in December 2017.

Large cap companies can fabricate earnings growth through share buybacks for a while, but that does not solve weak sales.  Less sales mean less shipping, and less shipping historically correlates with disappointing economic growth in the months ahead.

Weakness in transportation confirms a global slowdown in process. https://t.co/0CNxwBoGkJ via @YahooFinance

— Danielle Park (@kdaniellepark) July 18, 2019