By Jameel Ahmad
Demand outlook for Oil will come under pressure should the world economy accelerate its downtrend
WTI Oil experienced a volatile week ending November 22, with prices ranging between $54 and $58 at the time of writing.
The commodity has unexpectedly approached its strongest level in two months, despite the OECD revising world economic growth expectations for 2019 and 2020 to the lowest since pre-2010 at 2.9 percent and economic data showing that US crude inventories increased for the fourth successive week.
One of the explanations behind the advance in Oil prices can be attributed to the unrest taking place in Iraq, encouraging some concerns over a potential reduction in production output, and some of the hype behind the upcoming launch of the Saudi Aramco IPO for next month.
My personal view is that the rally in Oil is more closely linked to the coordinated risk appetite that has been noted across other financial asset classes, for example US stock markets extending their rally and the current sentiment from investors to carry risk in portfolios.
The current market does suggest that WTI can attempt $60, but I remain unsure on how much higher Oil prices can justifiably extend its gains.
It can’t be underestimated how much of a blow it is to world economic sentiment that the OECD has just days ago revised global GDP expectations for both this year, and next to the weakest level of economic expansion since the global financial crisis.
Oil is of course a commodity that relies significantly on demand, and the demand outlook for Oil will come under pressure should the world economy accelerate its downtrend.
Jameel Ahmad, global head, Currency Strategy & Market Research, FXTM