Rashid Husain Syed is a journalist, energy analyst and consultant based in Toronto. For almost 25 years, he served as vice-president of a leading Saudi trading and consulting house.
Crude markets are undergoing some structural changes. As the U.S. benchmark plunged by more than 20 per cent in late July, it slipped technically into a bear phase, and Brent crude wasn't far behind.
The glut that has been accumulating since last year is beginning to haunt the market. "Fundamental headwinds are growing, which outnumber any recent positives," Morgan Stanley told clients last week.
Weak fundamentals are playing havoc here. Despite occasional indications of an upsurge, the medium- to long-term crude scenario is increasingly cloudy, for a host of reasons.
For one, the global economic outlook is weak. "We expect global growth to move below consensus estimates," Morgan Stanley added.
In the meantime, fuel stockpiles across the world are brimming, with refineries having churned out huge volumes of diesel, gasoline and jet fuel. "There is much talk about the product glut replacing the oil glut, and this is a worrisome indicator for crude demand," Frank Klumpp, an oil analyst at Landesbank Baden-Wuerttemberg, was reported as saying this week.
This excess gasoline means refiners may close their doors sooner and for longer than usual during their traditional summer production shutdown, taking further demand out of the market.
Faltering Asian demand, however, is emerging as a cause of greater concern. Led by China, Asia has been the global economic hot spot for years. In times of turbulence, the Chinese dragon was seen to be pulling along the global economy against headwinds of all sorts.
In the process, China emerged as the largest global importer and the second-largest consumer of crude oil. To a large extent, global demand growth depended on Chinese consumption patterns.
Now, that's under threat. Asian crude demand is weakening, and some see this as not a cyclical phenomenon but a product of more permanent structural changes.
Asian crude oil tanker imports have fallen (albeit from record levels) for four straight months and by 12 per cent since March to about 82 million tons (20 million barrels per day), slightly below last year's levels.
Much of this decline is explained by the slowdown in China, the region's biggest consumer, accounting for 27 per cent of Asia-Pacific and 13 per cent of global demand.
With its long-term growth outlook now camped perhaps below 7 per cent – and possibly for the long term – most analysts expect vehicle sales in China to slow, too – further affecting demand growth. Car sales slipped to 2.1 million at the end of May, down from a peak of almost 2.8 million last December.
In the meantime, with China reportedly approaching the upper limits of its strategic petroleum reserves, some believe that the Chinese thirst for crude would diminish on this count, too. In June, JPMorgan said China's reserves are now at about 400 million barrels, close to capacity.
For Asia's other developed oil markets, long-term demand patterns are showing signs of fatigue.
Japanese oil consumption, once six million barrels per day (bpd) and 10 per cent of global demand, has fallen to about 3.5 million bpd, less than 5 per cent of world consumption. South Korean oil demand is at standstill, and it's expected to decrease further because of greenhouse-gas-emissions policies.
Many had been hoping for India to step into China's consumption shoes, but that hasn't materialized. Demand for new cars, crucial for healthy crude demand growth, is tepid in India, while motorbike sales remain strong. The number of new cars sold has fallen below 215,000 a month, well below the monthly record of just over 300,000 more than four years ago. There are only 25 cars for every 1,000 people, data from energy consultancy FGE show, compared with 110 in China. India's crude demand growth pattern may well not follow China's.
And after years of rapid growth, oil consumption growth in Saudi Arabia is slowing down, too. The kingdom's demand for oil increased by an average of 24,000 barrels a day in the first five months of 2016, the slowest growth rate for that period since at least 2010, according to the Joint Organizations Data Initiative in Riyadh.
Meanwhile, the supply side of the global crude equation continues to be strong. The threat of resurgent U.S. oil production with the rise of drilling rigs is adding to the pressure.
Members of the Organization of Petroleum Exporting Countries also continue to produce at historically high levels. Output has risen to 33.41 million bpd in July from a revised 33.31 million bpd in June, according to a Reuters survey.
All this means that structural weakness in the overall market is becoming evident. The sole bright spot on crude futures is the massive spending cuts by oil majors in recent months. Until that comes into play, crude markets may continue to sputter.