The Needle On Crude Oil Price

  • Feb 11, 2019 AEDT
  • Team Kalkine
The Needle On Crude Oil Price

A lot is happening over the crude oil price scenario at a global level. The increased activity at the U.S. in terms of new rigs coming into picture and leading to higher production, GDP numbers from geographies like UK, new discoveries from regions like South Africa etc., seem to be painting different directions for the price movement.

In a way and in order to gauge the direction of crude oil, we will carefully look at the ongoing market events and respective correlation concerning the performance in major economies. In the recent happening, the rising U.S crude oil inventories are seen to exert pressure on crude oil prices. On the other hand, the ban on Venezuela's oil industry and voluntary production cut by the Organization of the Petroleum Countries (OPEC) are supporting crude oil prices.

So on one side, the U.S crude oil inventories rose by 1.3 million barrels and touched 447.21 Million barrels till February 06, 2019 and exerted the pressure on oil prices; the ban on Venezuela's oil industry has been expected to eliminate 500,000 barrels per day (bpd) from the supply side of the market which somewhat supported the crude oil prices amid the demand scenario from the global market. The below thus gives a summary of such factors that look to be playing diverse roles in setting up the framework for future price movement.

 As at February 11, 2019, the Brent crude oil was seen at USD 61.96, down 0.23% and the same has been down about 4.5% in last one year.

 Summary of Factors that will hamper crude oil prices -

Global Consumption:

Economic growth has a substantial impact on oil consumption. From the below graphical representation, we can infer that oil consumption is directly proportional with the GDP measure. The stronger GDP generally leads to more consumption of crude oil as it is a raw material for energy production. As per the short-term outlook from U.S Energy Information Administration (EIA), the GDP of various economies may perform well in the first quarter of 2019 which can lead to the consumer demand for crude oil. However, the recent numbers from the UK seem to be having a debilitating effect on the prevailing conditions.

Data from Energy Information Administration Source (EIA)

U.S.-China trade war:

U.S.-China trade war fears have recently added a lot to the slowdown of global economic situation and will continue to do so without any positive dialogue. The U.S. President Donald Trump is all set to increase tariffs from 10% to 25% on $200 million worth of Chinese goods. Further escalating the ongoing tension between the two major economies, U.S. president Donald Trump stated that he did not intend to meet his Chinese counter partner.

Venezuela Issue:

The ban on Venezuela to sell crude oil is further supporting the prices. The ban is designed to knock out Nicolas Maduro from the president's office and appoint opposition leader Juan Guaido, who is a U.S.-recognized interim president. The authorizations will be in actuality from April 28, 2019, as the Venezuelan government controls a significant amount of the oil set-up. The ban from imposing date is expected to knock out 500,000bpd out of the supply.

U.S. Crude and OPEC actions:

U.S. crude oil supply is expected to grow to the level where the U.S. becomes a net oil exporter than importer amid higher production and less consumption, which in turn is putting pressure on crude oil prices. Whereas, OPEC members are maintaining their stance on continuous production cut to support the crude prices. However, The U.S. congress is looking forward to driving a resolution that will make it possible for the U.S. government to prosecute the members of OPEC. In turn, the OPEC members have warned the U.S. of retaliation in case of any Lawsuit against them. The ongoing concerns among the U.S. and OPEC are further putting pressure on crude oil prices.

Aramco IPO:

Aramco IPO project was first declared in 2016 to modernize the Saudi economy but was postponed to 2019, and then to 2021. Saudi oil company is hoping to raise a $100 billion by sale of a 5% stake by Prince Mohammed. The market participants are eyeing this event closely.


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