Oil benchmarks fall on poorer than expected economic data and rising supply; geopolitical risk offers scope for recovery

Commodity Update: Crude Oil – 15 August 2014

Brent and WTI crude fell over the course of the week as souring economic data from both Europe and the US dented investor expectations for demand growth to outstrip rising supply this year.

In detail, the core European nations released a raft of economic data during the opening days of the week. Two of the most important among these releases showed bloc wide GDP stalling with nil growth for the second quarter, while the German economy actually contracted during the period.

In addition to lower growth over the most recent period, the forward looking German ZEW survey of investor sentiment collapsed during July, with the monthly reading falling to its lowest level since November 2012.  

Over on the other side of the Atlantic, US retail sales missed estimates during the opening of the week while producer price pressures were shown as having eased during July.

On the supply side of the equation, expectations for more Libyan production facilities to be brought back on-line, despite ongoing turmoil in the country, also helped to drive prices lower during the week.

In short, oil benchmarks on both sides of the Atlantic remain suppressed off the back of plentiful supply and concerns that demand from developed economies could begin to flag in the latter half of the year.

Despite the aforementioned, we do not expect recent weakness to endure in the current environment. This is as tensions between Russia, Ukraine and the international community have reached a new high during recent days, while US air strikes in Iraq are yet to prevent Islamic insurgents from taking further ground.

Consequently, we look to see a partial recovery in oil prices over the coming week and would expect the bias here to remain toward the upside until conflict risks recede once again.

Brent/WTI

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