Justin Smirk, senior economist at Westpac, explains that the crude oil reached US$85/bbl in early October but quickly corrected to a low of US$59/bbl in late November as the market realised that concerns about ongoing robust demand not being met by supply were overdone in light of rising US inventories and surging US production.
Key Quotes
“The downside risks around global growth have persisted with rising trade tensions pointing to greater uncertainty in the outlook for demand.”
“The surge in US crude production has been the key change this year. Rising 20% in the year to November, the current level of output was not expected until end 2019. Earlier this year, US producers were using higher prices to forward sell crude, providing cash to invest in production with prices supported by ample liquidity as speculators looked to short sell. The recent fall in prices has reduced forward selling thus slowing potential growth rates. Nevertheless, environmental and industry deregulation under the Trump administration has further spurred investment so it would be foolish to assume that current prices cannot support further growth in US production.”
“At the December 7th meeting, OPEC announced a 1.2mbpd reduction in output in an attempt to rebalance in the market and lift prices from the US$60/bbl level just prior to the meeting. But we also know that above US$80/bbl there is significant demand destruction and a strong incentive for US producers to boost output. The announcement lifted crude to US$62/bbl and our forecast is for US$65/bbl to be the central point out to June 2019.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD keeps the red below 0.6400 as Middle East war fears mount
AUD/USD is keeping heavy losses below 0.6400, as risk-aversion persists following the news that Israel retaliated with missile strikes on a site in Iran. Fears of the Israel-Iran strife translating into a wider regional conflict are weighing on the higher-yielding Aussie Dollar.
USD/JPY recovers above 154.00 despite Israel-Iran escalation
USD/JPY is recovering ground above 154.00 after falling hard on confirmation of reports of an Israeli missile strike on Iran, implying that an open conflict is underway and could only spread into a wider Middle East war. Safe-haven Japanese Yen jumped, helped by BoJ Governor Ueda's comments.
Gold price pares gains below $2,400, geopolitical risks lend support
Gold price is paring gains to trade back below $2,400 early Friday, Iran's downplaying of Israel's attack has paused the Gold price rally but the upside remains supported amid mounting fears over a potential wider Middle East regional conflict.
WTI surges to $85.00 amid Israel-Iran tensions
Western Texas Intermediate, the US crude oil benchmark, is trading around $85.00 on Friday. The black gold gains traction on the day amid the escalating tension between Israel and Iran after a US official confirmed that Israeli missiles had hit a site in Iran.
Dogwifhat price pumps 5% ahead of possible Coinbase effect
Dogwifhat price recorded an uptick on Thursday, going as far as to outperform its peers in the meme coins space. Second only to Bonk Inu, WIF token’s show of strength was not just influenced by Bitcoin price reclaiming above $63,000.