Low oil prices are good news for disposable income. But they also reflect the risk of oversupply in a world where growth indicators continue to point down.Events since Trump first threatened increased tariffs in 2017 provide a textbook example of how tariffs are transmitted through the global economy. First, the uncertainty they create hurts sentiment.

Signs of a potential global recession are appearing, such as a fall in fixed investment and industrial production and a build-up in unwanted inventories. We are revising down our world growth forecast.The effects of a negative shock dating back to early 2018 are still being propagated throughout the world economy.

In June, the world PMI manufacturing index recorded its second consecutive month below 50, suggesting that global manufacturing is contracting.Global manufacturing sentiment deteriorated further in June. Markit Economics’ World purchasing managers’ index for manufacturing fell to 49.4 from 49.8 in May, the second month in a row it was below the 50 threshold, suggesting that global manufacturing activity is contracting.

The escalation in trade tensions, the dimming of global growth prospects and a surge in US export capacity have pushed us to lower our oil forecasts.The recent plunge in prices suggests that oil is acting like a leading indicator of global economic growth, reflecting investors’ concerns that lasting trade disputes will dent future growth and risk pushing the world economy into recession.

Increased US export capacity would probably force OPEC+ to change its current tactics.After last year’s collapse, oil prices have found support since the beginning of this year for several reasons. At this stage, the main question is whether the recent surge in prices is sustainable or whether we will see renewed oil price volatility, with the possibility of a repeat of 2018.

On 19 April, the price of a barrel of oil reached USD69.56 for West Texas Intermediate (WTI) and reached USD75.27 for Brent, today, the highest price since 2014. Since 9 April, oil prices have been significantly above their longterm fundamental equilibrium value. Three factors explain what has happened.