The Crude Oil Market Collapsed In 2018
The oil market crash of 2018 caught almost everyone off guard.In just a few weeks, crude prices have gone from a four-year high into a full-blown bear market.The rout, in which crude prices fell almost 30 per cent from their recent highs, was triggered by a combination of factors that spooked traders who had predicted prices would rise to $100.
Iran oil sanctions "expire"
Earlier this year, the trump administration vowed to zero in on Iranian oil exports, a tough stance on sanctions that sent crude prices soaring.
Under pressure from Mr Trump, Saudi Arabia raised production to an all-time high.This matters because Saudi Arabia is like the central bank of the oil market.It is the world's largest exporter and the only country able to significantly increase production.Russia and the United States have also stepped up production.
But the trump administration shocked oil markets earlier this month by taking a more cautious approach to Iran.India, China and Japan are among eight countries allowed to continue buying oil from Iran.
Iran's continued exports have left the market suddenly facing a potential supply glut.Opec is under pressure to slash production at next month's meeting in Vienna to help oil prices recover.But some member states, such as Iran, are expected to resist any voluntary production cuts.
America's shale-oil boom
While Mr Trump praised Saudi Arabia, his tweet ignored the central role played by the us in the oil rout.The us has recently overtaken Russia and Saudi Arabia as the world's largest crude oil producer, driven by the shale boom, for the first time since 1973.
The international energy agency forecasts that us production will surge by more than 2m b/d in 2018.It is expected to climb further next year.No other country can increase capacity to this extent.
The fear among oil traders is that the world may not need as much us shale oil to enter the market.This is the main cause of the oil crisis.U.S. crude inventories rose for the ninth straight week, according to data released Wednesday.
Us crude inventories rose 4.851 million barrels to 446.91 million barrels, the highest since December 2017, data showed.EIA data also showed us crude production remained at a record 11.7m b/d.
But the plunge in oil prices is not just about oversupply.Slowing global economic growth already appears to be dampening demand for oil.
Us demand for crude is "very strong" but the iea warned last week that demand in Europe and developed Asian countries was "relatively weak".The iea said demand in India, Brazil and Argentina was "slowing" because of high prices, weak currencies and deteriorating economic activity.
Trade tensions and higher interest rates are slowing the global economy, although there are no signs of a sharp decline.Global growth is likely to peak at 3.7 per cent this year and is expected to slow to 3.5 per cent in 2019 and 2020, the OECD said in its latest forecast, released on Wednesday.In September it forecast that the global economy would grow by 3.7% in 2019.
The international monetary fund last month cut its forecasts for GDP growth in 2019 for China and the us because of trade wars.Global GDP is expected to fall from 2.9 per cent in 2018 to 2.5 per cent next year.This is by no means good news for the oil that fuels the economy.
The stock market turmoil
Oil has also been affected by Wall Street, as fears of an economic slowdown have led investors to flee risky assets, whether Apple shares, bitcoin or crude oil.Crude oil plunged 7% Tuesday, sending the dow down 552 points.
Damien kohn, head of energy research at Goldman sachs, said:Damien Courvalin, head of the international energy agency, wrote to clients on Tuesday that some of the fall in oil prices reflected "broader cross-commodity and cross-asset selling as concerns about economic growth continue to grow."
Gasoline is getting cheaper and cheaper
The oil crisis before Thanksgiving will make travel cheaper for millions of americans.The average U.S. gasoline price fell to $2.60 a gallon Wednesday, down from $2.85 a month earlier, according to AAA.
That could provide an extra boost to the economy heading into the holiday shopping season, with Mr Trump likening the fall in oil prices to a "big tax cut" in the us.
Of course, the sharp drop in oil prices could also affect the outlook for the U.S. oil industry, where the last recession triggered dozens of bankruptcies and destroyed hundreds of thousands of industry jobs in places like Texas, North Dakota and Oklahoma.
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