Financial World US Stock News The force that drives oil prices to fall sharply by the end of 2018 will not disappear. U.S. crude oil prices have plummeted more than 40% since hitting a four-year high of more than $76 a barrel in October. The global benchmark Brent crude oil is currently trading at its lowest since August 2017.
Oil is an important weather vane for future economic growth. The sharp drop in oil prices reflects concerns that the global economy is weakening, as well as surge in U.S. crude oil production and falling U.S. stocks. Even the production cuts in OPEC and its partners have failed to reverse this trend.
This change could lead to a crazy 2019.
Global economy slows down
International Monetary Fund (IMF) economists expect global economic growth to slow down to 2.5% next year from 2.9% in 2018. Reduced economic activity means a decrease in demand for energy products.
The International Energy Agency (IEA) warns that demand in developed countries in Europe and Asia is "relatively weak". The report also noted that demand in India, Brazil and Argentina "slowed", partly due to weak currency.
OPEC warned this month that demand for its oil will drop by about 1 million barrels per day next year than in 2018.
"The main factor in demand will be the economic outlook," said Robin Mills, CEO of energy consulting firm Qamara energy. "The decline in oil prices will give it some support, but overall, the global economy seems likely to slow down."
OPEC and Russia
Early in December, OPEC and its allies agreed to reduce crude oil by 1.2 million barrels per day from global markets.
OPEC member states promise to cut production by 800,000 barrels per day within 6 months starting from January next year. Russia and other partners have pledged to cut another 400,000 barrels of oil per day. The deal reached by
caused oil prices to soar, but the impact disappeared within a few days.
Oil prices may determine the situation when the agreement expires in June. "If oil prices remain below $60 a barrel, OPEC is expected to seek to extend the agreement reached in December. If oil prices rebound to $80 a barrel, it may seek to increase production again."
Iran sanctions waiver
November, investors were surprised by the United States' temporary sanctions waiver to allow them to buy oil from Iran without fear of punishment. The
exemption will expire in May, and it is unclear whether it will be extended. What will happen next is "hard to predict because the U.S. policy toward Iran has almost completely changed."
He added: "The United States does not want gasoline prices to rise, so U.S. policies may be affected by market trends, and market trends will be affected by the effect of OPEC's production cuts."
US oil boom
In September this year, the United States became the world's largest crude oil producer, surpassing Russia and Saudi Arabia for the first time since 1973.
This shows that the US shale oil boom has reshaped the global energy landscape. U.S. oil production has more than doubled in the past decade.
It even questioned OPEC's ability to influence oil prices. "One of the driving factors behind the dynamic changes that have caused OPEC to lose influence on the oil industry is the emergence of external oil production capacity," said Jameel Ahmad, head of global foreign exchange strategy and market research at
FXTM. "In recent years, no country has been more prominent in this field than the United States."
Ahmad said.
