Oil. Picture: REUTERS
Oil. Picture: REUTERS

London — Consumption concerns have kept oil prices under pressure since the middle of April, even as threats to production and seaborne exports multiply.

US sanctions have slashed exports from Venezuela and Iran, Libya's production is threatened by renewed fighting, and tension between Iran and the US have ratcheted up.

But the consumption outlook is deteriorating, with global trade hit by the US-China dispute and growth prospects in major emerging markets from Brazil to India and Turkey downgraded.

Global manufacturing production is decelerating, new export orders are falling, air freight volumes are declining and container throughput is down, the most recent monthly indicators for March and April show.

Policy makers insist the economy is in robust health, but financial markets are pricing in a quarter-point cut in US interest rates before the end of 2019, anticipating the Fed will take out insurance against a deeper slowdown.

Problems are especially acute in emerging markets, where the MSCI emerging markets equity index is down 9% compared with the same period in 2018.

The decline in the MSCI emerging markets index is an improvement on the 17% drop at the end of December, but still the worst since the 2015/2016 commodity slump.

Major emerging markets, which have provided much of the growth in oil consumption in the last two decades, are beset by economic problems:

• Brazil has downgraded its growth forecasts and the economy may have shrunk in the first quarter.

• Argentina’s inflation rate is accelerating, and the International Monetary Fund predicts the economy will shrink in 2019.

• Turkey’s economy is forecast to contract amid rising tensions with the US.

• India’s economy is also losing momentum with an expectation the country’s central bank will have to cut interest rates .

• China’s economy is being battered by higher tariffs imposed by the US as part of the bilateral dispute between the two countries.

• Iran’s economy is shrinking, Saudi Arabia’s growth is predicted to decelerate and the United Arab Emirates will continue to grow slowly, according to the IMF.

Compounding the problem, oil prices are still high in many formerly fast-growing emerging economies because of the strong dollar compared to their own currencies, which is also weighing on demand.

As a result, fuel consumption is growing more slowly, or in some cases falling, in some key markets, the latest national statistics show.

Brazil’s petrol sales have been falling steadily for 18 months but the decline accelerated sharply in March, while diesel sales, which had been growing, also dropped unexpectedly.

India’s petrol consumption was up almost 8% between February and April compared with the same period a year earlier, but that was a sharp slowdown from 11% growth at this point in 2018.

India’s total consumption of petroleum products is now rising at an annual rate of about 3%, down from more than 6% in August 2018.

Against the backdrop of a struggling global economy, oil consumption is likely to increase more slowly this year than in 2018 or 2017, and prices will struggle to rise.

If oil prices do spike higher as a result of further production disruptions, the increased burden on already weakened emerging economies will cause consumption growth to slow even more sharply.