Since at the beginning of December, OPEC and its allies announced a supply cut of 1.2 million barrels per day from the beginning of January, oil has fallen by almost $ 6. On the eve, the quotes updated to 14-month lows. In other words, prices could not get support from the conclusion of the transaction.
However, energy officials, in particular Saudi Minister Khalid Al-Falih, expected something similar. According to their calculations, the oil should have become moderately cheaper at the end of this year and at the beginning of the next, until the plans to reduce production will not yield a return. The scale of the current collapse was not in their plans.
Over the past two months, oil has fallen almost in half. Indeed, the loss of $ 30 per barrel from the four-year highs of the beginning of October (at that time WTI was trading at $ 77, and Brent, at almost $ 87) is staggering. However, a drop of more than 40% does not bother the oil stores now. Their minds are agitated by another question, where will prices go next?
Raw materials analysts are preparing the market for a new round of decline, since the current surplus is caused not only by shale oil, but also by high production in Saudi Arabia and the Russian Federation. The specter of a slowing global economy also scares markets.
"Bullish" oil-adjusted investors start to shiver only with one thought that the quotes will drop below $ 40. It is worth recalling that during the first round of the shale crisis, black gold was quoted at $ 25.
In such extreme "bearish" conditions, as now, traders will ignore the positive news and begin to focus on sales drivers. In this scenario, the chances of seeing oil at $ 30 increase. This will require a proportional deterioration of the fundamental and technical factors, including the world economy.
Given the record production in the United States, Russia and Saudi Arabia, the trend may continue.
The trading community adheres to a "bearish" point of view. Experts believe that now, control over the market is completely lost, and do not exclude that WTI will test the mark of $ 40 before the end of the year.
What will happen to oil in 2019?
Volatility in the market now remains extremely high. It is very likely that the players will meet her next year. Oil prices in January and the following months will be influenced by a number of positive and negative factors.
Bearish factors.
The most significant risk for the oil refinery is the global economic downturn, alarm bells have already been received. If growth is slowing in China, it is declining at all in some European countries. The emerging markets are dominated by a currency crisis, and volatility has spread to all financial markets in the world. The situation is exacerbated by the tendency to tighten the policy of the Central Bank.
A portion of the negative will bring American slate. In the new year, the IEA expects an increase in supply from non-OPEC countries by another 1.5 million barrels per day, which is higher than world demand. The bulk of supplies will come from the US, where a new wave of the shale revolution is predicted.
There are doubts that the terms of the deal to reduce production will not be fully implemented. In the Russian Federation, they have already warned that the country will not reduce large volumes in January. The Saudis can assume the main burden, since they are very interested in expensive oil, but not a fact.
"Bullish" factors.
The largest and most obvious risk here is Iran. The US has provided benefits to some Iranian oil buyers, which end in May. Recall the last time the November deadline approached, the Brent barrel cost above $ 80. Trump's team went on such a cunning move to put pressure on prices, while from the beginning of the year, they talked about the intention to reduce the export of Iranian oil to zero. It is unlikely that the White House will decide to repeat this scenario when the supply surplus returned to the market. The US is now free hand for a tougher line of conduct.
Unstable Libya, due to the actions of the rebels, reduced production by 400 thousand barrels per day over several weeks, having increased this figure to multi-year highs. The chances that Libya will surprise the market with new unexpected losses are still high, although the country had previously made bold forecasts for an increase in production in 2019.
Venezuela, finishing the year with a production rate of 1 million barrels per day (600 thousand barrels less than in January), there is nothing to lose. It is unlikely that someone from the analysts will undertake to predict the recovery of production in this problematic country in the short and even medium term.
The transaction to reduce production volumes by 1.2 million barrels per day will help eliminate most of the surplus, but this can be delayed by the time. OPEC + at the next meeting in Vienna, which will take place in the middle of the year, is likely to extend the measures until the end of the year to ensure price stability.