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IMF Cuts Global Growth Forecast: Will Oil Prices Fall?

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IMF cuts growth rate

On October 9, the IMF released its semi-annual “World Economic Outlook” report. According to the report, the growth rate of the global economy in both 2018 and 2019 is expected to remain at 3.7%. Earlier, the IMF had forecast a 3.9% growth rate for the global economy for these two years. The ongoing trade war between the US and China, sluggish growth in Europe in early 2018, and other country-specific factors contributed to the curtailment in the forecasted growth rate.

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Will it leave a scar on oil prices?

The downward revision of the global economic growth rate forecast could impact oil prices negatively because oil is a growth-driven asset. Moreover, inventory levels, which we’ll discuss in part three of this series, could prevent higher oil prices. In the next part, we’ll focus on US crude oil production.

On October 8, US crude oil November futures fell 0.1% and settled at $74.29 per barrel, $2.1 less than the highest closing for US crude oil active futures since November 21 based on closing prices. The Energy Select Sector SPDR ETF (XLE) fell 0.1% on October 8. Meanwhile, the S&P 500 (SPY) was flat, while the Dow Jones Industrial Average (DIA) rose just 0.2%. The small fall in energy stocks might have limited the upside in these equity indexes.

Moving averages

On October 8, US crude oil futures were 3.7%, 6.9%, 7.1%, and 11.3% above their 20-day, 50-day, 100-day, and 200-day moving averages, respectively. These moving averages will be an important support zone for US crude oil prices going forward. Moreover, on the downside, the closing level of $71.81 per barrel will be important for US crude oil prices until October 12.

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