Oil investors are as worried about slowing demand as they are about excess supply, amid fresh concerns that the U.S.-China trade fight will hurt the global economy and curb fuel consumption.
On Tuesday, the U.S. crude benchmark settled 1.9 % lower at $53.63 a barrel, while Brent, the global price, slid into a bear market after falling more than 20% from its April peak to $58.94.
U.S. crude tumbled roughly 8% last Thursday, the steepest one-day drop since 2015, after President Trump announced a new round of tariffs on China. Analysts said that the latest tariff threats remain a worry and that if enacted on Sept. 1, as Mr. Trump pledged, they could quickly sap oil demand world-wide.
“President Trump’s unexpected tariff announcement Thursday suddenly revived the specter of an economic slowdown—akin to bubonic plague for oil demand,” said Robert McNally, president of Rapidan Energy Group.
August marked the seventh consecutive month that the Energy Information Administration cut its forecast for growth in global oil consumption for 2019. Furthermore, weekly data on gasoline demand in the U.S.—the largest gasoline consumer in the world—have disappointed market expectations. Shaky fuel demand, during the summer months when driving generally picks up, is particularly worrying to energy investors.
The concern isn’t of a global decline in demand for oil and petroleum-based fuels, but rather a slowdown in demand growth rates. That is largely, analysts say, because many emerging countries continue to see a rising middle class that buys more cars and drives more miles, potentially offsetting the impact of economic slowdowns in more developed places such as Europe.
But the sharp price decline in recent days is a sign of how much has changed in the past year. U.S. oil prices broke above $75 a barrel in October on expectations that supplies would dwindle after Mr. Trump reimposed sanctions on Iran.
President Trump’s unexpected tariff announcement Thursday suddenly revived the specter of an economic slowdown—akin to bubonic plague for oil demand
Now, crude prices are languishing in a range after companies have pulled back on spending and manufacturing activity has for the most part weakened this year.
The energy market is also contending with uncertainty over central-bank policy. The day U.S. crude tumbled 8% was one day after the Federal Reserve indicated that its first interest-rate decrease since the financial crisis may be a one-and-done cut, rather than the start of an easing cycle that could accelerate crude consumption.
Goldman Sachs Group
recently lowered its forecast for global oil demand in 2019 to 1.2 million barrels a day from 1.4 million at the start of the year. Bank of America Merrill Lynch estimates that the latest round of U.S. tariffs on China could further weaken oil demand by an additional 250,000 to 500,000 barrels a day.
“Oil is at the edge of a cliff,” analysts at Bank of America Merrill Lynch wrote in a research note.
Global oil consumption is expected to grow by an average 1 million barrels a day this year, the EIA said Tuesday in its latest short-term energy outlook, which is 100,000 barrels a day lower than its forecast the previous month.
The downward revision for 2019 reflects slowing economic growth in many of the world’s largest oil-consuming countries, the EIA said.
A weekly report recently showed that motor gasoline supplied to the market, which economists use as a proxy for demand, fell 115,000 barrels a day last week from the prior week to 9.6 million barrels a day. That total was also 315,000 barrels a day less than the same week last year.
The “biggest industry problem is gasoline demand,” said Tom Kloza, global head of energy analysis at Oil Price Information Service, a price-reporting agency for the energy industry. “We haven’t seen any indication that demand is on a path to recovery.”
According to Mr. Kloza, the car fleet these days has increased efficiency. He pointed to new Ford 150 trucks that get much better mileage than the older trucks and SUVs getting traded in.
Investor sentiment in the oil market could improve if the Fed signals it will cut interest rates further and the U.S. economic expansion, the longest in history, continues to chug along. The labor market report this month showed the unemployment rate remains near a 50-year low and hiring has been steady.
But some say demand growth for fuel could continue to slow and may be a harbinger of bigger worries.
“Historically, gasoline demand can be a leading indicator of a U.S. economic slowdown,” said Mr. Kloza. “Folks that live paycheck to paycheck will cut back on driving well before the collective economic community confirms that a slowdown is in progress.”
Write to Dan Molinski at Dan.Molinski@wsj.com
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