Brent crude bear market: Is the sky falling? Don't count on it
Brent crude oil closed in bear market territory this week, falling more than 20 percent from an April peak, reflecting fear that has permeated the global marketplace with many now worrying that the world is headed toward a major economic slowdown.
Calls of slowing demand growth are coming from all angles. Many big wire firms and oil reporting agencies (as well as some recent economic data) predict that oil demand growth will slow. Yet one thing to remember about all of this predicted doom and gloom is the last time Brent crude dipped into bear market territory, it was a lot closer to the bottom than the top.
The main reason, of course, for this fear and negativity seems to be the hardening of the positions of both the U.S. and China in the trade war. Concerns that no progress will be made is causing fear and consternation across the board.
FILE - In this Feb. 14, 2019, file photo, Chinese staffers adjust U.S. and Chinese flags before the opening session of trade negotiations between U.S. and Chinese trade representatives at the Diaoyutai State Guesthouse in Beijing. Beijing on Friday,
The market is even shrugging off data from the American Petroleum Institute that suggests that U.S. oil supplies are falling at the fastest pace in years. The API reported U.S. crude supply recently fell by 3.43 million barrels, which is the eighth crude draw in a row, the longest stretch of supply drops since January of 2018.
What this does suggest is that oil is trading a lot on fear. Yes, there have been some signs that demand is weakening but recent weakness in Brent suggests that the market is pricing in the rising risk of a full-blown global recession.
Crude oil prices even acted negatively to reports that central banks like India, New Zealand and Thailand cut their interest rates -- not to mention increasing the odds that the U.S. would cut rates earlier and more often, which also failed to inspire confidence. The oil market took the rate cuts as just another sign that global oil demand will fall off the map.
Yet despite that initial reaction, the truth is that more often than not, global central bank easing is not bearish for oil -- but bullish. Even in the darkest days of the 2008 recession, rate cuts and the Fed’s quantitative easing engineered one of the biggest oil price rebounds in history.
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So while it might not be safe to buy in the crude oil market just yet, once the fear passes it might create a great opportunity. In fact -- the sky could be the limit if and when we get a U.S.-China trade deal.
Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com.