A vicious cycle for crude oil.

Quotable

“The trouble with lying and deceiving is that their efficiency depends entirely upon a clear notion of the truth that the liar and deceiver wishes to hide. In this sense, truth, even if it does not prevail in public, possesses an ineradicable primacy over all falsehoods. “
                                     Hannah Arendt

Commentary & Analysis
A vicious cycle for crude oil.

"There are plenty of worries, there are plenty of fears, but so far the fears are completely unfounded," Rupkey said. "Bad things have not happened. We’ve been pleasantly surprised."
I grabbed that here – an article explaining why the US is not in double-dip territory just yet. The article points to the latest industrial production and retail sales numbers; both figures rose respectably in the latest month.
But despite this pleasant surprise, it’s difficult to say bad things have not happened [US stocks shaved off as much as 17% in 11 days]; and to say worries and fears are completely unfounded may be a stretch considering US GDP is disappointing, the employment situation is discouraging, and systemic risk from the eurozone could strike at any moment.
Rupkey may be one of those cheerleaders still drunk on the last 2 ½ years of mostly uninterrupted stock market gains. But I guess someone needs to be buying when I am selling, right?
Enter crude oil …
Commodities in general were hit simultaneously with stocks in a rout that came to at least a temporary end last week. Crude oil was among the biggest losers in the commodities world, shedding roughly 20% in 10 days. It was mostly chocked up to the fact a slowdown in the US would be a major drag on oil demand – naturally.
And – naturally – crude oil is bouncing back as some of these US/global growth fears are suppressed (and as stocks markets bounce back). Risk on and risk off is still in play.
But the crude oil picture may be exactly what sparks a new sell-off, in both crude oil and US markets. Yesterday I wrote to my Commodities Essential members to discuss the global market environment and its potential impact on crude oil. Among the things I included was this table from Econbrowser:

Quarter
Contribution to GDP growth (annual rate)
2011:Q1
-0.4%
2011:Q2
-1.1%
2011:Q3
-1.6%
2011:Q4
-2.4%
2012:Q1
-2.4%
2012:Q2
-0.7%
2012:Q3
-0.1%

Effect of 2010:Q4 and 2011:Q1 oil price change on GDP growth for 2011-2012.

Source: Econbrowser

Basically, it suggests the negative growth impact from high crude oil prices has yet to be seen. In other words: US GDP will likely reveal an increasingly soft US economy in coming quarters; crude oil prices will be hit on renewed growth concerns, lending to the double-dip recession potential.

For all these reasons, OPEC and the IEA downgraded their forecasts for global oil demand growth. OPEC knocked off 150,000 barrels per day from their previous 2011 estimate; the IEA knocked off 100,000 barrels per day. Based on the vicious cycle of high crude oil prices which negatively impact global growth which negatively impacts crude oil prices, OPEC and the IEA may yet make further downward revisions to their demand forecasts.

Has this latest bounce in prices almost reached an end? You be the judge:

Crude Oil Futures, daily, Fibonacci retracement:

S&P 500 Futures, daily, Fibonacci retracement: