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The worst is facing oil markets



Some analysts see the world avoiding a recession next year, leaving some room for oil prices.

The IEA warned last week that "the hefty supply cushion" being built in the first half of 2020 will cause OPEC + problems as the group tries to balance the oil market. Part of the reason for another potential surplus is the steep decline in demand growth this year, forcing oil forecasters to make more downgrades to their forecasts.

Demand has easily expanded to the lowest rate since the global financial crisis 10 years ago, "Bank of America Merrill Lynch said in a note.

The decline was particularly concentrated in industrial sectors, which have been hit hard by the trade war." The fall in production in 201

9 has been so pronounced that we believe it can be aptly termed as the third global industrial recession in the last ten years, after activity became visible in 2012 and 2016, "the bank said.

Or, the phrase more succinctly," The world has just lived through an industrial recession, "the Bank of America concluded, and oil prices only held up due to huge supply cuts in 2019. The industrial decline spread across the world.

Take India, for example. The" weak picture for industry and industry "in the Indian economy continues," JBC Energy said in a statement Monday, which has hit diesel sales. "120,000 b / d (7%) yoy contraction was greater than seal v the demonetisation-driven disadvantage of January 2017, "said JBC Energy. "With low sales of bitumen, activity in Indian industry and construction appears to be declining." Related: Iraq's largest oil field threatened by anti-government protests

But there are some reasons to think things could turn around. Although much still depends on the outcome of the US-China trade war and the "partial agreement" that the market still thinks is likely, recent data streams have reduced the fear of a recession. "Looking ahead to 2020, we expect an improvement in cyclical demand conditions as PMIs for industry appear to have stabilized and in some cases appear to be positive," Bank of America said.

Part of the reason for more optimism is that companies with global supply chains have been holding back on purchases over the past year, largely due to the trade war, and have been blowing away in stock. The strategy appeared to be an attempt to wait for tariffs in the hope of a negotiated breakthrough. It makes sense at the individual company level, but it hit the producers hard as sales and activity fell. However, companies will now have to restructure by 2020, says Bank of America. This can help stabilize the economy.

Meanwhile, if the US and China can actually agree on a partial trade agreement, it would "further help boost industrial activity and confidence in the global economy," Bank of America said, and "any signs of a trade-front improvement could exert some pressure on cyclical energy and metal prices. "Removing some tariffs can both push the dollar down and raise commodity prices.

Still, a major breakthrough in the trade war will be extremely difficult, and the two sides have been far apart from each other. The partial agreement, such as it is, would only suspend tariffs in exchange for China buying large sums of agricultural goods.

But even the partial agreement has run into problems. The Trump administration has hyped up a $ 50 billion purchase dollars from China for US agricultural commodities, a number some say is "not possible." So it's worth noting that even a very narrow and modest deal has turned out demanding prospects, not to mention more structural differences between the two countries. Related: OPEC emissions soar as Venezuela bounces back from the brink

In short, as the tone has softened and both sides have signaled that negotiations continue to an end, the US-China war is far from finished.

In fact, the doubts began to reappear on Monday. CNBC said that "the mood in Beijing for a trade deal is pessimistic because of US President Donald Trump's reluctance to roll back tariffs." Beijing may instead decide to sit and wait and bet that Trump's position continues to deteriorate in the face of an inquiry inquiry.

"It looks like no deal has been made," said Matthew Miskin, market strategist at John Hancock Advisors in Boston, to Bloomberg.

By Nick Cunningham from Oilprice.com

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