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Citi: Emerging Market Might Alarm Oil’s Demand Growth

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Sep. 28 2018, Published 8:17 a.m. ET

Emerging market might alarm oil’s demand growth

Edward Morse, Citi Research’s global head of commodities, said that oil’s demand growth could decrease by 100,000 barrels per day in 2019, according to a Reuters report. Falling emerging market currencies and soaring oil prices could be behind the lower demand. The WisdomTree Emerging Currency Strategy ETF (CEW) has fallen 6.2% in 2018. US crude oil prices have risen 19.4% during this period. The following graph shows the divergence in oil and emerging market currencies.

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Oil’s demand growth

Based on the IEA data, the oil demand growth for 2018 and 2019 is at 1.4 MMbpd (million barrels per day) and 1.5 MMbpd, respectively. According to OPEC, the global oil demand could grow by 1.6 MMbpd in 2018—compared to 1.4 MMbpd in 2019.

US crude oil prices

On September 27, US crude oil November futures rose 0.8% and settled at $72.12 per barrel. On the same day, the Energy Select Sector SPDR ETF (XLE) was unchanged. The S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) rose 0.3% and 0.2% on September 27. Although energy stocks were mute, the rise in oil might have helped the indexes rise. In Part 3 of this series, we’ll analyze US crude oil’s relationship with these equity indexes. Integrated energy stocks like ExxonMobil (XOM) and Chevron (CVX) are also sensitive to oil prices.

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