Rollercoaster oil prices give consumers an unpredictable ride
2018 has been a surprising year for oil prices, cost per barrel has come full circle almost a year down the line. What have been the highs and lows and why has this been happening?
The year opened off the back of a steady incline in the $bbl cost in 2017. The year was set to be another year benefitting the big players of the market, with suggested sanctions from President Trump and continued OPEC threats (the Organisation of the Petroleum Exporting Countries) of curtailing supply, adding to trader sentiment.
In review of this, the graph below, describes the situation clearly. Point A, demonstrates how in early February, the market had hit its year low, after shedding nearly $8/bbl. Iran’s agreement to boost its supply to the world markets as well as North America’s output hitting a record high has combined to encourage a sharp rise in global supply.
Unfortunately, as you can see moving from point A in February to point B in May, a downward trend wasn’t to emerge. Prices began an almost immediate return to their historical upward movement. Multiple political and economic factors played a part in oil prices hitting its yearly high on 22nd May of $79.80/bbl. This in-turn spurred the start of various sell off trades, to which the market tested previous support and resistant markers. This all amalgamated to prices re-correcting themselves for a second time in 2018 and go on to hit a 4 year high of $86.29/bbl, as seen in point C in October. The yearly highs have shed almost 25% of its value to settle at $65/bbl in mid-November.
All of this activity has introduced the persistent fears that a surplus will emerge early next year. Despite OPEC’s plans to cut production and Saudi Arabia, the worlds top oil exporter, saying it would cut exports by 500,000 barrels a day in December. Saudi energy minister, Khalid al-Falih, said the move to cut exports was down to lower demand. Forbes highlighted a key point ‘While Saudi Arabia, Russia and the other OPEC+ nations are promising to enact major production cuts designed to stabilize crude markets at their formal meeting on December 6, the U.S. shale industry is only going to keep getting better at increasing its per-well recoveries and lowering its costs as time goes on’. As we enter the final trading month of the year, we enter an unprecedented period of uncertainty.
It is yet to be seen how the markets will respond to a deliberate reduction in production, but after a year of volatile highs and lows in price, the only certainty in the market is uncertainty itself.
Graph: Source- Bloomberg Markets (https://www.bloomberg.com/quote/CO1:COM)
Article written by: Scott Harries, Business Development Manager