Oil has entered a bear market as fears of an economic downturn mount. The fundamentals look much tighter than the swoon might suggest, but the supply and demand picture is also beginning to look more negative.

The EIA report was exceptionally weak, showing a strong build in crude oil (+6.8 million barrels), gasoline (+3.2 million barrels) and distillates (+4.6 million barrels). The combined builds across multiple products surprised the market. Sometimes, these figures sort of offset each other. For instance, if refiners are running really hard, they tend to build up gasoline stocks, but they use up crude oil in the process, so crude inventories dip even as gasoline stocks rise. This time around there was none of that. Increases across the board led to a plunge in oil prices.

“Oil has a Lehman Brothers moment,” is how Standard Chartered described it. The investment bank puts out its own “bull-bear index,” ranging from -100 to +100, measuring the direction the market seems to be heading in a given week.

“Our US oil data bull-bear index registers -96.7, only slightly better than the extreme -100 reading of two weeks ago,” the bank said. “The four-week average of the index is -79.4, taking it far below the five-year range.” There hasn’t been such a negative four-week run since 2008, the bank said. In other words, oil market fundamentals are heading in a really bearish direction, and the last time things looked this bad was during the financial crisis. Related: This Giant Oil Field Just Hit An Impressive Production Record

The flip side is that the U.S. economy is not spiraling out of control in the way that it was after the collapse of Lehman Brothers. So, it’s possible that oil prices “have overshot to the downside,” Standard Chartered noted. “We think oil prices are now around USD 10 per barrel (bbl) too low on a fundamental basis, unless a specific data point is believed to be a leading indicator rather than a temporary blip,” Standard Chartered analysts said in a separate report on Tuesday.

Still, demand is starting to weaken. Standard Chartered notes that weakness is mostly confined to distillates (i.e., weaker activity in manufacturing and agriculture), with consumption in May dropping 9 percent, year-on-year. While gasoline demand has held up, it is still off 1.7 percent from a year ago.

A Wall Street Journal survey of 10 investment banks finds an average Brent forecast of $70 per barrel for the year. Brent is now in the low-$60s, so major analysts are largely shrugging off the current tailspin and believe that crude will rebound. They are looking past the possibility of an economic downturn and instead are focusing on tightening supply conditions due to declines in Venezuela, Iran, potentially Libya and temporary outages from Russia. “I’m still happy with our forecasts,” Warren Patterson, senior commodities strategist at ING, told the WSJ. “The selloff we’ve seen has been purely driven by macroeconomic and trade concerns, and if we look at the fundamental picture, we see oil supply continuing to tighten.”

But it isn’t as if economic concerns have no effect on the fundamentals. Obviously, an economic downturn would undercut demand, leading to a supply/demand mismatch. The pending U.S. tariffs on Mexico, should they go forward, would almost certainly deepen the gloom. Bank of America Merrill Lynch admitted as much. “Fears of an escalating trade war, particularly following last Thursday evening news regarding new US tariffs on Mexico, have shattered confidence. Manufacturing PMIs could deteriorate further in the months ahead, derailing our $70/bbl average oil price projection for 2019,” the bank said. Related: Battery Breakthrough Solves Major Electric Car Problem

The supply picture, while currently tight, could also flip from a bullish outlook to a bearish one. U.S. shale is expected to continue to grow, despite low oil prices and financial stress in the sector. “Well-publicized Wall Street demands that light tight oil producers rein in their spending have fueled expectations that supply growth would soon slow down,” data-tracking firm Kayrros said. Those concerns are “inflated,” and “budget discipline does not necessarily come at the cost of production growth,” Kayrros said. The firm noted that while the rig count is down, well completion data – which more reliably tracks production growth – “bounced back with a vengeance in Q1 2019” after a soft fourth quarter.

Rystad Energy also sees strong production growth ahead, despite poor financials. The Norwegian consultancy revised up its forecast for U.S. production to end the year at 13.4 million barrels per day. “Our US supply projections have been revised up yet again. US oil production is already higher than many in the market believe,” says Bjørnar Tonhaugen, Head of Oil Market Research at Rystad Energy.

If U.S. oil production continues to grow even as oil prices slide, that will make a rebound for Brent and WTI all the more difficult.

By Nick Cunningham of Oilprice.com

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