Why Oil Prices Didn’t Go Much Higher This Week
“The global economy has become increasingly fragile and uncertain, with growth slowing and downside risks continuing to mount.”
That warning came from the OECD on Thursday, which said that the economic outlook for both industrialized nations and emerging markets were “weakening.” Unless governments took action, “growth could get stuck at persistently low levels.”
One of the main reasons that a low-growth trap looms is because of the U.S.-China trade war, which is taking “an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets and endangering already weak growth prospects worldwide,” the OECD said in its latest Interim Economic Outlook.
The OECD cuts its global GDP growth rate to 2.9 percent for 2019, the weakest expansion since the global financial crisis a decade ago. Worse, “downside risks continue to mount.”
But it isn’t just the trade war between Washington and Beijing. The uncertainty surrounding a fast approaching no-deal Brexit could also undercut growth and investment. That would push the UK into a recession. The Chinese economy is also decelerating, and faces “significant financial market vulnerabilities” related to high debt and deteriorating credit quality.
In response, the OECD calls on central banks to remain accommodative, although it noted that low interest rates are not a cure-all. Instead, governments should lean on more aggressive fiscal policy, taking advantage of low interest rates to make public investments.
The U.S. Federal Reserve just announced another 25-basis point cut this week, and suggested that it would take more action of the economy deteriorated. “Weakness in global growth and trade policy have weighed on the economy,” Fed Chairman Jerome Powell admitted. “Although household spending has been rising at a strong pace, business fixed investment and exports have weakened,” the Federal Open Market Committee said. Economists fear that the slowdown in manufacturing and business investment could yet drag down consumer spending, which to date, has held up.
Source / More : By Nick Cunningham of Oilprice.com
The price of OPEC basket of fourteen crudes stood at $65.30 a barrel on Friday, 20 September 2019, compared with $64.39 the previous day, according to OPEC Secretariat calculations.
WTI 57.92 ($/barrel)
Brent 65.23 ($/barrel)
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