2018 was a rollercoaster ride for crude oil prices. The oil market reportedly experienced its worst annual loss since 2015. Following the 2014-2016 downturn in crude oil prices, the recovery in 2017 and the beginning of 2018 was cut short in the second half of 2018. The flip in prices came as the market expectations moved from the fears of oil shortage to fears of another crude oil glut.
The plunge in prices came primarily from Trump’s restoration of sanction on Iran, as Saudi Arabia along with OPEC members increased production amid fears of a supply squeeze. While prices rose initially on fears of a shortage, the increase in pumping by Saudi Arabia, Russia, and other OPEC members to stabilize the prices, was hit by slower than expected demand growth amid the ongoing trade war between China and the USA, and Trump’s surprising move of granting waiver to countries importing crude oil from Iran at the time the sanctions officially took effect.
The crude oil market entered 2019 with unsettled trade war between the two super powers, which continue to tank demand forecast for crude oil.
This, along with higher US oil production seems to have pulled prices down. Interest rate hikes by US Fed have also accelerated the oil price drop as higher interest rates make the dollar dearer.
Come 2019, global analysts are eyeing only a moderate recovery in crude oil prices, where prices are averaging at about $68-$73 a barrel next year. The recovery however, is not without strong headwinds; these include both economic and geopolitical risks.
What can bring a rebound in oil prices especially in the first half of 2019 are the production cuts anticipated from OPEC and Russia. Around 1.2 million bpd is being expected to be removed from the market. Also, Macro economic growth forecasts are positive for the first half of 2019, which means crude oil demand is likely to remain firm.
On the flip side, the risks to recovery are immense and come largely from fresh pressure from a boost in US shale oil pumping. OPEC could try to play the balancing role by further production cuts. Oil prices will take a cue from the upcoming meeting of the OPEC and non-OPEC members in April in Vienna; in short, the oil market in 2019 will not be much different from what it was in 2018 – volatile, capricious and largely bearish! Happy New Year!
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