It has been somewhat of a tough time for oil over the last month. It was not long ago that we saw crude futures hit their highest levels since 2014, progressing along a strong upward trend with seemingly not much suggesting that the commodities steady rise would be ending any time soon. Fast forward some 7 weeks and we see all of crudes gains for 2018 erased and a noticeable rise in opinions suggesting that the commodity is lacking the fuel from investors to drive prices up, excuse the pun.
January 2017 saw a vast amount of oil producing nations cut production levels in an effort to bring a halt to what was one of the most significant downward trends in oil price history. With an agreement in place crude saw a consistent rise through 2017/18. Along came October and suddenly we see oil prices plummet faster than Deepwater Horizon and a number of factors began to emerge that paint an uncertain future for the commodity.
The Organization of the Petroleum Exporting Countries (OPEC) has forecast that global demand for crude will grow by 1.29 million barrels per day next year, down 5% from what the group had previously forecast last month. The 15-member organisation is also keeping a close eye on other non-OPEC oil producers whose output for 2019 has been revised up by 5.6% to 2.23million bpd. OPEC have stated that their forecasts signify that production will outpace global demand next year and thus force oil prices down as excess supply persists.
Over supply is not the only issue facing oil in the coming months. Recent forecasts for global economic growth have also been revised downwards, with the IMF (International Monetary Fund) highlighting US trade tensions with China and its other trading partners as a key reason for this. The re-emergence of tariffs as a political tool has seen uncertainty rise. In the background we have the European Union still negotiating a post-Brexit trade arrangement and NAFTA awaiting the legal seal of approval for the group’s new lateral trade agreement. Until the aforementioned global issues are resolved or at least improve, oil demand will be hit by global uncertainty.
In addition, who can ignore Donald Trump and his recent comments on Saudi Arabia? There were those that expected Trump to put forward a firm stance when it came to the Kingdoms potential role in the killing of journalist Jamal Kashoggi, an action that may have provided a boost to oil prices. Yet being the completely uncontroversial figure he is, Trump would go on to label Saudi Arabia as a “steadfast partner” and even seemingly support claims by Saudi officials that Kashoggi was a political dissenter. If the following quote is to be heeded towards, we cannot expect Trumps influence on oil to retract over the coming months: “I’ve kept them down; they’ve helped me keep them down. Right now we have low oil prices, or relatively — I’d like to see it go down even lower.”
Oil is undoubtable going to be an interesting asset for investors to pay attention to going into 2019. Oversupply is clearly going to be an issue and in more ways than one, the US is going to have a major role in shaping the fortunes of oil. Trump is not the only factor to pay attention to, the Permian basin located in West Texas and branching into New Mexico has announced plans to iron out its production process and implement 3 additional pipelines next year. The US is set to become a net oil exporter for the first time in over 75 years and when OPEC convenes on the 6th December, how to tackle the groups US rival will undoubtedly form the agenda. Simply put OPEC cannot afford oil prices to keep declining and it faces a tough challenge to get the commodities value on the rise again.
Marcus Brown, Sales Trader
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