The oil market is arguably the most capricious market in the world where the market forces are not the only driving force for prices; the deadly combination with global politics is what actually decides the course. As the end of 2018 approaches, a look at the prices could show what lies ahead for crude oil.
Crude oil prices rose significantly in the largest part of 2018, after slowing down lately. They have been plummeting visibly for the past six plus weeks and have fluctuated wildly in the past month where Brent Crude slithered lower after touching $86 a barrel. The increase in prices came from the rising tension over imposition of US sanctions on Iran once again. However, prices weakened once again over fears of more than ample supply, which has sent OPEC into a state of nervousness for another supply glut.
Key factors pressurising oil prices lately include increasing US Shale production faster than expected, which has finally started showing in the official numbers. Where US doesn’t seem to take a break in pumping, Saudi Arabia and Russia too have been pumping at near-highest capacities.
But all of this isn’t that simple. Trump’s erraticism has infuriated Saudi Arabia. The US seemed to change course by giving waivers to countries to continue limited imports from Iran. The beneficiaries include large importing countries like China and India. However, this shift of behaviour towards Saudi Arabia’s arch rival only seems to consolidate Trump’s tweet that oil prices should be much lower! Iran’s monthly exports are still bound to decline going forward. Even Russia is happy with the current tide of higher supplies. These circumstances point towards a supply overhang. According to OPEC’s latest monthly oil report, demand for crude oil is expected to slide with the Middle East and China cited as having a weaker-than-expected outlook – certainly not a booster for oil prices
Saudi Arabia shouldn’t like sliding oil prices if it wants to fund its fiscal budget. It sure did show its discontent over Trump’s statement concession for the Iranian exports by announcing a likelihood of production cut by as much as 1 million bpd in 2019.
However, the kingdom must be perplexed as Donald Trump has once again shown his support for Saudi Arabia, thanking the kingdom for keeping the oil prices low. The significance of this appreciation is high for Saudi Arabia as it comes at a time when the CIA has reportedly concluded that Saudi Crown Prince Mohammed bin Salman ordered Khashoggi’s killing. And while all eyes were set on the upcoming OPEC meeting in December 2018 especially after Saudi Arabia was considering a production cut, things might not turn out as exciting as they were being expected.
Comments
Comments are closed.