Brent crude has slipped below $100 a barrel. Expect this level to become “a ceiling for Brent”, says Capital Economics, “due to ample supply and fragile global demand”. China’s credit squeeze is the latest issue to affect black gold, as it threatens to exacerbate the economic slowdown in the world’s second-biggest oil consumer: China accounted for 11% of global demand last year, behind America’s 21%.
Lower Chinese and tepid Western growth have caused other emerging markets to slow. Global oil demand forecasts for this year have fallen. Bank of America Merrill Lynch, for example, is now pencilling in a rise of 0.8 million barrels per day, down from last November’s 0.95 million.
Meanwhile, non-Opec supply has grown unexpectedly quickly, with America the standout performer. Last year US production rose by a record 766,000 and is set to surpass Saudi output by 2020. Last month, US oil in storage reached its highest level in over three decades. As for geopolitical risk, there is a chance that the Syria conflict could spread, although America and its allies could release oil from strategic reserves to calm markets, as they did when Libya erupted two years ago.
On the plus side, though, the election of a reformist president in Iran could reduce tension. For now, at least, “the Middle Eastern premium should go”, reckons Jonathan Barratt of Barratt’s Bulletin. Finally, the prospect of an end to money printing is also likely to dampen sentiment towards riskier assets in the near future.