Oil Prices Witnessing A Fall: Should You Be Concerned?

It seems like the oil traders have loads of analysis to do before they take a call. Earlier, there were tensions regarding the increased oil prices on the back of US sanctions on the exports of Iran. The impacts of the heightened oil prices have been felt on the emerging economies for a long period of time. For example, the depreciation of Indian currency as a result of higher US interest rates (which makes the dollar strong) have raised the concerns over the oil imports. The global analysts were even worried about the overall health of the Indian economy as there were concerns that the country might witness a rise in the current account deficit or CAD.  

However, the oil prices have now been witnessing a downtrend. The primary reason responsible for the downtrend could be Saudi Arabia’s decision that it would control the supply shortages which has somewhat eased the concerns related to the Iran sanctions in the minds of the global investors. However, another possible reason which could have triggered the fall in the prices is the data release from American Petroleum Institute or API which stated that the US crude inventories have seen a significant increase. The strong decline in the oil prices might have concerned some investors but they need to know these substantial downtrends are the part and parcel of the today’s trading environment.

The global market participants are of the view that tensions and issues which are being faced by the equity markets as well as in regard to the economic growth have now started to show their impacts over the oil markets as well. The investors need to wait and watch as to what happens to the oil prices. Also, in earlier November 2018, the US sanctions on the exports of Iran would be commenced. The US stated that it would be restricting all the fuel exports from Tehran. However, other producers of the oil are working towards meeting the supply shortages.

The energy minister of Saudi Arabia stated in a conference that the oil producers would be entering into a deal in the month of December which would help in the market stabilization. The energy minister also stated that they would be handling the disruptions from the supply side as the market players are now concerned about the Iran sanctions. Moreover, they would be working to meet the demand of the customers which could help in ensuring the customer satisfaction.

Earlier there were concerns that Saudi Arabia might go for reducing the supply of crude, however, these tensions were lifted by the comments from the energy minister of Saudi Arabia. However, some market players are of the view that if Saudi decides to reduce the oil supply, it would negatively impact its market share as well as it would hamper its reputation. The global analysts expect that moving forward the demand for oil is expected to decline on the back of negative momentum in the economic growth as well as increased oil prices.

Oil prices were down in the range of about 4%-5% on Tuesday as Brent crude futures slipped over 4% to $US76.44 a barrel.


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