RBC Capital Markets’ Helima Croft blames the U.S.-China trade war for oil’s drop into bear market territory.
According to the firm’s global head of commodity research, bullish sentiment around crude has been damaged by global growth fears sparked by tensions between Washington and Beijing.
“What is the demand driver for oil? It’s China. There is a real fear of a slump in Chinese oil demand growth,” she told CNBC’s “Futures Now ” on Thursday. “One of the things that has kept this market tight this year has been really high Chinese oil imports.”
Without a sign that President Donald Trump and Chinese President Xi Jinping are closing in on a resolution, she contends the commodity will continue to struggle.
Croft, a CNBC contributor, contends Trump’s May 5 tweet that indicated a trade deal wasn’t close anymore stopped the oil rally cold.
“Oil was moving higher, you know, the first part of May, and then you had the trade war resume,” she added.
Over the past month WTI oil is off 15%. International benchmark Brent is also struggling, down 13% in that time frame.
Croft points out there’s a second issue adding to the bearishness surrounding oil: a large U.S. inventory build.
“This is a counter-seasonal build. It’s leading to concern of U.S. production being higher than anticipated,” she said. “That’s a second whammy for the oil market right now.”
However, Croft predicts the bearishness could turn on a dime on positive news of a trade deal.
“If we get some kind of signal coming out of the G20 that there is an off ramp on the trade war is and if we start to get the inventory draws that we are expecting because of summer driving season, that is what potentially moves us higher —back into this sort of $60s for WTI,” Croft said.
On Thursday, WTI settled up 1.8% at $52.51 per barrel, while Brent settled up 1.7% at around $61.68 a barrel.
Source: CNBC
