In January, barrel prices strongly increased because OPEC+ members have been starting to implement the Vienna agreement reached on November 30th 2018. During the meeting, oil producers decided to cut production by 1,200,000 b/d in the first half of 2018, with the aim of removing the oversupply in the oil market.
In the first month of 2019, Brent North Sea quality opened the quotations at $54.75/b and closed at $61.06/b, while West Texas Intermediate opened the listings at $46.6/b, closing at $54.15/b. Both the European and Asian benchmark and the American grade reached their monthly high on January 21st – respectively, quoting $62.83/b and $54.19/b – even in the wake of the political crisis, which has sparked in Venezuela, where the world’s biggest crude reserves are held.
In addition to the OPEC+ deal and the turmoil in the Latin American country, another bullish factor was a slight depreciation of the dollar and the impression that the Federal Reserve will not implement a strong tightening monetary policy in 2019 as it was previously supposed.
At the same time, it has to be taken into account that the oil market has been characterized by bearish factors too. Especially, as follows:
1. On January 11th 2019, the U.S. producers extracted the record of 11,900,000 b/d. Nevertheless, there are signs – especially, the active rigs trend – that U.S. tight and shale output will slow its growth in 2019;
2. In 2018, China’s economy is estimated to expand by 6.6%, which would be the slowest annual pace since 1990.
According to a report published by the International Monetary Fund on January 21st, world economy is estimated to grow by 3.5% in 2019 and by 3.6% in 2020. Those are respectively, 0.2% and 0.1% points below the previous forecasts issued in October 2018 and the second downturn revision in three months. “Global growth is expanding at a healthy rate, but we are seeing a slowing momentum”, the IMF’s head of research Gita Gopinath said, adding that there were “many important downside risks to the global economy”.
If global growth pose a threat to the oil demand, the new U.S. sanctions imposed against Petroleos de Venezuela SA on January 29th will bring another supply risk to the market, increasing its volatility.
In December, oil prices strongly decreased at around $8/b in the wake of the global financial turmoil. In particular, Brent North Sea oil quality started the negotiations at $61.91/b and closed at $54.15/b, while West Texas Intermediate grade opened the quotations at $53.35/b, closing at $45.67/b. After the Federal Reserve announced the fourth hike of its interest rates in 2018, both the European and Asian benchmark and the American grade reached their minimum on December 24th. Especially, Brent lowered at $50.68/b – the lowest level since August 18th 2017 – whereas WTI reduced at $42.38/b – the minimum price since August 10th 2016.
Furthermore, during the second half of December, barrel prices diminished due to the following factors:
1. Thanks to the fracking technique, the United States extracted 11,700,000 b/d that is a record
2. According to the International Energy Agency, OCSE commercial inventories increased by 5,700,000 barrels to 2,872,000,000 barrels in October, moving slightly above the last five year average level;
3. On December 19th, despite warnings from President Donald Trump who was concerned about a U.S. financial drop, FED rose the range of the overnight lending rate by 25 basis points from 2-2.25% to 2.25-2.50%. The effective risk of a financial bubble, in addition to continuing trade tensions between the United States of America and China, could lead to a weaker energy demand in 2019;
4. The role of finance. Some Hedge Funds have been increasing their bearish bets in particular, over the Brent benchmark.
On December 7th, the so-called OPEC+ group headed by Saudi Arabia and the Russian Federation decided to cut their production by 1,200,000 b/d for a period of six months, starting from January 1st 2019. If producing countries want to reduce the volatility that characterized the oil market during the second half of 2018, they must implement the pool agreement as soon as possible. The first 2019 oil data, which indicated that Saudi Arabia cut its exports by approximately 500,000 b/d to 7,253,000 b/d in December, seemed to confirm this aim.
In November, oil prices carried on strongly with their bearish trend. In particular, Brent North Sea quality opened the listings at $72.75/b and closed at $59.23/b, while West Texas Intermediate grade started the quotations at $63.65/b, closing at $50.82/b:
In detail, barrel prices decreased due to the following reasons:
1. Demand side - The persistence of the trade war between the United States of America and China has been causing global economic growth to worsen;
2. Supply side - The United States exonerated eight countries from purchasing Iranian oil; among which is China, the current world leader of crude imports;
3. Supply side - The United States, Saudi Arabia and the Russian Federation opened their taps at full speed. Due especially to the fracking technique, the U.S. output reached 11,700,000 b/d in November, Saudi Arabia extracted 10,700,000 b/d the previous month, while Russia set a new post-Soviet record high of 11,410,000 b/d in October, up from 11,360,000 b/d in September;
4. Supply side - U.S. commercial stocks increased for the tenth straight week in a row, moving from 426,004,000 barrels on October 26th to 450,485,000 barrels on November 23rd (publication date, 5 days after).
“[Currently] the name of the game in the oil market is volatility”, International Energy Agency Executive Director, Fatih Birol, said at a conference in Oslo on November 20th. “And with the increasing pressure of geopolitics on oil markets that we are seeing, we believe that we are entering an unprecedented period of uncertainty”. A part from the decision that OPEC will take during the next meeting, scheduled in Vienna, on December 6th, this uncertainty will not probably disappear in the months to come. For the time being, oil prices trading at around $60/b are “absolutely fine” said Russian President, Vladimir Putin. Before U.S. President, Donald Trump, cancelled their meeting scheduled during the G20 in Buenos Aires, Putin had also previously stated, “if it’s required, we’re in touch with OPEC, we will continue this joint work”.
In October, oil prices strongly decreased at around $10.5/b. In particular, Brent North Sea quality started the negotiations pricing at $84.95/b and closed at $74.59/b, while West Texas Intermediate grade opened the transactions trading at $75.45/b then, closing at $64.98/b.
On October 3rd, prices reached their 4-year high, respectively quoting at $85.92/b and at $76.22/b, in the wake of a shrinking spare oil capacity and then, they steadily dropped.
This oil plunge was the result of several factors as followed:
1. Supply side. According to the data published by the Energy Information Administration, U.S. commercial stocks increased from 395,989,000 barrels on September 21st to 426,004,000 barrels on October 26th (publication date, 5 days after), especially because refinery utilization is slowdowning do to maintenance. It was the longest run of inventory gains since early 2017 (6 straight weeks in a row);
2. Demand side. Based on the figures provided by the Oil Monthly Report on October 12th, the International Energy Agency cut estimates for the 2018/19 oil demand growth by 110,000 b/d to 1,300,000 b/d and 1,400,000 b/d respectively, because of the rising threats over global economy (trade war, tariffs, high oil prices, the appreciation of the dollar that could affect emerging countries);
3. Finance. In accordance with the U.S. Commodity Futures Trading Commission data, the net long position – that is the difference between the bullish and the bearish bets — fell by 14% in the week to October 16th for both oil qualities.
However, the strongest indication that affected the bearish barrel trend was given by Saudi Arabia Oil Minister, Khalid al Falih, who stated on October 23rd that OPEC and its allies are in a “produce as much you can mode”.
In the meantime, Kingdom’s output surged to approximately 10,700,000 b/d – near to an all-time high – overwhelming supply disruptions occurred in Venezuela and Iran, whose oil exports decreased to 1,800,000 b/d in September (-26%).
In September, barrel prices significantly rose at around $4/b. In particular, Brent North Sea oil quality started the negotiations at $78.01/b and closed at $82.75/b, while West Texas Intermediate opened the transactions at $69.64/b, closing at $73.43/b.
Especially, during the first week, both oil benchmarks touched their monthly low respectively, pricing at $76.71/b on September 6th and at $67.45/b on September 7th due to signs that the global market was comfortably supplied despite deepening losses in Venezuela and Iran. Then, oil prices marked a bullish trend, because of the following issues:
1. According to the Energy Information Administration data, U.S. commercial stocks decreased from 401,490,000 barrels on August 31st, to 394,137,000 barrels on September 14th, the lowest since February 2015;
2. After having hit a new record high at around 11,100,000 b/d, the U.S. unconventional oil output is forecast to stop increasing. The EIA slashed the estimates for the 2018/19 production growth;
3. The U.S. sanctions imposed to Iran in May 2018, which are still decreasing the Iranian oil exports, despite the fact that they will not come into force until November 4th.
In the wake of the OPEC + meeting held in Algiers on September 22nd/23rd, the European and Asian benchmark and the American grade reached their 4-year high on September 28th because the OPEC + group – led by Saudi Arabia and Russia – decided not to increase oil supply without paying any attention to the U.S. President numerous suggestions to do so.
Furthermore, the repeated threats made by Donald Trump towards Iran during his speech at the United Nation General Assembly on September 25th spurred a jump in the barrel price as well.