Crude oil prices continue falling on Friday extending the loses from the previous session. Initially, the markets were positively influenced by signs that the decline in OPEC oil production, which is scheduled to start from January 1, will be bigger than expected. However, the moods deteriorated and the prices turned down.
The futures on US crude oil WTI fell by 0.47 USD, or 1%, to 45.41 USD per barrel. The variety is set to record a drop of 10% for the week.
The price of Brent oil variety decreased by 1.16 USD, or 2.12%, to 53.49 USD per barrel. In the previous session, Brent wiped out 2.89 USD of its value, and the fall for the week would be about 10%.
Oil prices fall in line with stock market declines, as investors are increasingly worried about the strength of the global economy next year. Additional concerns came from the United States, which is the world’s largest oil consumer, which government may temporarily suspend work on Friday.
“The Organization of Petroleum Exporting Countries (OPEC) plans to submit a production quota plan to its members and allies”, said the OPEC Secretary, Mohammed Barkindo. According to him, in order to achieve the proposed reduction of 1.2 million barrels per day, the effective reduction for the member states should be of 3.02%, which is above the initially discussed 2.5%.
Futures on Brent and WTI decreased by more than 30% down since October’s peak due to fears that oil demand will slow down on the background of slowing global economy.
Will the decline in oil prices continue in 2019?
At the end of 2018, oil prices collapsed by more than 40%, and in the late days of December, the WTI oil price reached even 46 USD per barrel, while Brent it traded at 55 USD per barrel. These are the lowest values of crude oil since August 2017.
As a whole, the oil entered the good mood in 2018 and the bullish sentiment gained in the last two years continued. The oil prices rose after the agreement between OPEC and Russia on shrinking production. The WTI even reached a 4-year high of over 77 USD per barrel, and the price of Brent oil hit 87 USD per barrel.
But at the beginning of October the situation changed radically. Prices of crude oil collapsed by more than 10% and oil quickly entered the bear market. The sanctions imposed by President Donald Trump on Iran’s oil production, which in fact pushed prices up, became meaningless after the US president made an exception in eight countries in November. Among them are some of the largest users of Iranian oil, such as China, India, Japan and South Korea.
Since the oil has scored the worst series in its history – 12 consecutive losing sessions in mid-October. Donald Trump’s statements in favour of lower oil prices also do not help bullish sentiment on the oil market.
All this happened amid the news that Saudi Arabia will cut its yield by 500,000 barrels per day in December. There was also an immediate reaction from OPEC. The parties to the cartel resort to a new production cutback agreement.
Expectations for a slowdown in the global economy and oversupply may continue to weigh on oil prices in 2019. We expect oil to go down to 30-35 USD per barrel in the first half of next year, after which we can see an increase back to 70-80 USD per barrel.
Main factors on oil markets
Oil prices rose in the week after agreed cuts in oil production by the representatives of the Organization of Petroleum Exporting Countries (OPEC) and their allies. But then they went down again. There are a number of factors that will affect oil prices both in terms of supply and demand.
The biggest and most obvious risk for the oil markets comes from Iran.
The temporary release from US sanctions of eight countries will expire in May. At a price of more than 80 USD per barrel for Brent and approaching November, the administration of US President Donald Trump has done something reckless, restoring criminal measures against Iran and threatening to bring down Iranian oil supply to zero.
Iran’s oil production declined by 380,000 barrels per day in November compared to a month earlier, falling below 3 million barrels per day.
There is still a large amount of oil that the United States can hit through sanctions, and if it does, Washington will cause raising of oil prices.
Libya is another factor in oil markets. The country cut 400,000 barrels per day of its production because of its unstable domestic situation, having previously successfully increased supply to record levels. Despite its high oil production targets for next year, Libya may surprise the markets with unexpected losses due to the country’s military conflicts.
Venezuela will end the year with exports of almost 1 million barrels per day, down by 600,000 barrels per day since January. It is uncertain what will be the oil production of the South American country in 2019.
Research suggests that US shale oil production will continue to grow in 2019. The big oil producers in the US have already exceeded the forecasts for the current year despite fears of overproduction and oversaturation of oil pipelines.
However, the recent fall in prices, financial stress and ongoing problems with oil pipelines can finally slow down oil extraction and supply.