As the saying goes, markets can stay irrational longer than one can stay solvent. It is an open question whether the current sell-off, which started in the second half of August and took the price of Brent below $70/bbl yesterday for the first time since December 2021 is an irrational one and whether it will continue.
The message from China is simple but loud and reverberates throughout the globe. The country keeps struggling to incentivize spending and sluggish aggregate demand ensured that industrial producer prices fell by a forecast-beating 1.8% last month whilst consumer prices inflated 0.6%, below analysts’ expectations. Overnight data was equally disheartening: August exports exceeded expectation, imports underwhelmed, and the purchase of foreign crude oil dropped 7% on the year.
There is no point in trying to get away from the fact that last week's oil performance was anything less than terrible. M1 WTI finished down $5.88/barrel (-7.99%), Brent $7.74/barrel (-9.82%), Heating Oil 13.65c/gallon (-6.06%), RBOB 31.57c/gallon (-14.27%) and Gasoil $46.00/tonne (-6.6%). All contracts made new 2024 lows and in the case of the US products, prices were printed that have not been seen since the pandemic year of 2021.
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