Published: Sun, August 18, 2019
Markets | By Otis Pena

Oil rises as US retail sales ease recession fears

Oil rises as US retail sales ease recession fears

Oil prices fell almost 2% on Thursday, extending the previous session's 3% drop, to trade a little over $54/barrel, driven lower by heightening recession concerns and a surprise boost in USA crude inventories.

United States retail sales rose 0.7 percent in July as consumers bought a range of goods even as they cut back on motor vehicle purchases.

An inverted Treasury yield curve is historically a reliable predictor of looming recessions.

" The rebound has a restorative appearance regarding it on slim quantities, as opposed to a beachhead for an approaching rebound", claimed Jeffrey Halley, elderly market expert at OANDA.

With the 10-year Treasury yield slumping to 1.58 percent, leaving it even further below the 3-month Treasury-bill rate at 1.95 percent, the NY Fed's recession model - based on that yield spread - suggests the odds of an economic contraction have risen to 37 percent, said Paul Ashworth, chief US economist at Capital Economics, in a note. In July, OPEC+ agreed to extend oil output cuts until March 2020 to prop up prices. China reported a surprise drop in industrial output growth to a more than 17-year low.

Oil pared gains after OPEC said in its monthly report that oil market fundamentals look somewhat bearish for the rest of 2019 and trimmed its global oil demand forecast due to a slowing economy.

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The West Texas Intermediate for September delivery erased 1.87 USA dollars to settle at 55.23 dollars a barrel on the New York Mercantile Exchange, while Brent crude for October delivery lost 1.82 dollars to close at 59.48 dollars a barrel on the London ICE Futures Exchange.

Meanwhile, Phin Ziebell, senior economist at National Australia Bank, worried, "At what point will further output cuts be needed at the back end of this year from OPEC and Russian Federation to keep things going the way they are?"

"The risk to global economic growth remains skewed to the downside", the report said.

However, what bullish traders are really hoping for is a rise in U.S. Treasury yields and renewed strength in U.S. equity markets.

The oil rig count, an early indicator of future output, has declined over the past eight months as independent exploration and production companies cut spending on new drilling as they focus more on earnings growth instead of increased output.

OPEC's efforts have been undermined by worries about the economy, as well as rising USA stockpiles of crude and higher output of US shale oil.

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