Demand concerns are now driving prices

Markets appear to have come round to our long-held view that slower economic activity this year will weigh on the prices of most energy and industrial commodities. Not even an attack on oil tankers close to the Strait of Hormuz was enough to prevent a further slide in the oil price this week. That said, commodity prices started the week on a strong note, encouraged by news that a last-minute deal had been reached between the US and Mexico and that tariffs were avoided. However, investor sentiment subsequently soured on the back of data showing high US oil stocks and weak industrial activity in China. Turning to next week, it will be relatively quiet on the data front. The Fed is set to meet early in the week, but we think that it is unlikely to panic and cut interest rates. Investors in the oil market will be closely watching geopolitical developments in the Middle East. Although the market largely took this week’s attacks in its stride, any escalation in tensions poses a significant upside risk to our oil price forecast.