The oil market is heading towards rebalancing this year, most analysts seem to think, with OPEC+ production cuts, combined with a potential slowdown in U.S. shale eating away at the surplus. However, the “rebalancing” all hinges on the steady demand growth projections that most analysts have at the heart of their forecasts. On that front, we just got another dose of bad news.
On Monday, the International Monetary Fund lowered its economic growth forecast and seemed to sound the alarm bells regarding the health of the global economy. “While global growth in 2018 remained close to postcrisis highs, the global expansion is weakening and at a rate that is somewhat faster than expected,” Gita Gopinath, the Economic Counsellor and Director of Research at the IMF, said in a commentary on January 21.
The IMF only downgraded its growth estimate by 0.2 percent, down to 3.5 percent for 2019, but pointed out that “the risks to more significant downward corrections are rising.” These risks include escalating trade tensions and trade uncertainty, the possibility of a sharper slowdown in China, and a resulting selloff in commodity markets. Also, budget fights in Europe, the Brexit saga and the ongoing government shutdown in the U.S. also present uncertainties.
These risks are layered on top of existing economic headwinds, which include weakness in the Eurozone, an “unwinding of fiscal stimulus” in the U.S., and crucially, higher interest rates and a strong dollar because of interest rate hikes.