If you want to know where the global economy is headed, check the oil markets. Sentiments about growth and inflation are baked into the price of oil as much as they are in anything else one can trade. Which is why the recent selloff is troubling for what it says about the state of the global economy.
On April 16 the price of Brent crude fell below $100 for the first time since July 2012. In the last two months, Brent is down 17 percent. Its U.S. equivalent, West Texas Intermediate, has lost $10 a barrel since the end of March, to $88.
The latest dip comes as the International Monetary Fund lowered its global growth forecast, to 3.3 percent from 3.5 percent. Recent data from China have also sparked concerns that growth there is slowing, and along with it, the demand for crude oil.
After spending much of the year buying up oil contracts, speculators are now running for the exits. In the week ended April 9, money managers unloaded the equivalent of about 20 million barrels of oil in U.S. petroleum contracts, according to the Commitments of Traders data released that week by the Commodity Futures Trading Commission. Now that we’re seeing weaker global growth numbers, that selloff has gathered steam. According to data compiled by Bloomberg, hedge funds and other money managers cut their bullish bets on Brent to their lowest level in four months.
There’s also a supply issue at work: Analysts surveyed by Bloomberg expect U.S. crude supplies will have hit 390.1 million barrels this week, the highest in 23 years. The government is scheduled to report inventories on April 17.
Today we learned that North Dakota produced 715,000 barrels of crude per day in February, a 6 percent increase from January, and about 40 percent more oil than it pumped just one year ago.
The more North Dakota crude that makes its way to the East Coast on trains and barges, the fewer barrels of imported West African oil the U.S. ends up using. And that means the oil from Angola and Nigeria that used to be shipped to the U.S. is now being exported to Asia, further driving down the price of Brent crude.