It looks as if crude oil prices are ready to head lower, this time all the way down past 65 dollars per barrel of crude oil. From a momentum point of view the recent rally in oil has not been able to break past 80 and the rash of bad news about the US economy will certainly lead to downward revision in demand forecasts. The dismal economic data in July has replaced fears of rapid inflation in the near future (caused by excess liquidity in the system and low borrowing rates) with concern for disinflation or deflation.
Recent US Economic Data:
US Unemployment: 9.5%
Current US Trade Balance: -42.3B (Prior US Trade Balance: -40.3B)
Retail Sales Number: -0.5%
Actual Factory Orders: -1.4%
Prior Factory Orders: 1.2%
Producer Price Index: -0.5%
07/15 Industrial Production: 0.1% (Prior: 1.2%)
Then there is the Baltic Dry Index debate. Is it excess shipping capacity coming online, China storage or more bad news waiting across the curve that has pushed BDI prices to historic lows for the last 5 weeks. And that is just the US outlook. While the uptick in Euro has addressed currency concerns in Europe, the long term impact of Euro-zone austerity measures and the shrinkage in growth side by side by measure to reign in growth in China are all going to lead to a revision in global oil demand growth for 2010 as well as for 2011. After BAML, Goldman and many others, UBS is now also willing to tow the line by bringing its price forecast down from the loft 90 dollars per barrel of oil to the mere 80’s.
Lower oil prices anyone?