'US crude continues to be an unstoppable force': Here's a simple guide to navigating the oil market in 2019

  • It’s been an especially volatile year in the energy market.
  • Key factors at play next year include Iran sanctions, OPEC, economic growth, and US production.
  • Watch oil trade in real time here.

The energy market is volatile by nature, but this year was marked by especially sharp price movements. The cost of oil seesawed to and from multi-year highs within a matter of months.

In November, International Energy Agency executive director Fatih Birol predicted tumult in the energy sector was just beginning. “We are entering an unprecedented period of uncertainty in oil markets,” he said at a conference in Norway.

Prices have fallen about 40% from October peaks, with Brent currently trading around $US54 per barrel and West Texas Intermediate just above $US46.

So, what’s next for oil? Many expect a modest recovery in prices, to about $US60 to $US70 per barrel, but there are a flurry of factors at play. Here’s what will drive the market in 2019, according to energy analysts.

Iran sanctions

President Donald Trump pulled out of the Iran nuclear deal this year, reimposing energy sanctions against Tehran. When the administration stated its goal was to send Iranian exports to zero, analysts warned there might not be enough oil to meet demand. The International Energy Agency, for example, said sanctions could make maintaining global supply “very challenging.”

After months of uncertainty surrounding policy details, the Trump administration announced sanctions waivers for eight countries. That was still stricter than under the Obama administration, which issued exemptions to 20 countries and asked them to reduce Iranian crude imports by a fifth every 180 days.

“It will be interesting to see whether waivers are extended or renewed next year for those eight countries, especially in light of the fact that OPEC cut production directly against President Trump’s wishes,” said Ashley Peterson, a senior oil market analyst at Stratas Advisors.

OPEC

OPEC and other major producers led by Russia agreed to slash production this year, most recently removing 1.2 million barrels per day from the global market, and officials have said further cuts could follow. The cartel had previously increased output this summer in the face of pressure from the White House.

“The plan is well studied but if it does not work, we always have the power in OPEC to call for an extraordinary meeting,” United Arab Emirates energy minister Suhail al-Mazrouei said Sunday of oil production cuts. “If we are required to extend for six months, we will do it.”

But as key members face uncertain conditions, analysts caution the cartel could overshoot. For instance, an unfolding economic crisis in Venezuela sent production in the oil-rich country to historic lows. Meanwhile, unrest in Libya has caused output disruptions from Africa’s largest proven oil reserves. Those countries, along with Iran, are exempt from this round.

Economic growth

Activity is expected to moderate in economies around the world next year, likely weighing on businesses’ and consumers’ appetites for fuel. OPEC has lowered its 2019 global demand forecast four months in a row this year, most recently by 2.1 million fewer barrels per day than in 2017.

As stimulus fades and monetary policy tightens, more than half of economists surveyed by the Wall Street Journal think a recession could begin in 2020. Still, some think expectations for slowing growth are overblown.

“The speed of the turnaround in market sentiment has been dramatic, but we think it has been overdone,” HSBC analysts said in a recent research note. “Demand estimates are moderating, but only gradually and the outlook still looks solid.”

US production

After becoming the largest oil producer this year, American influence in the world energy market is poised to continue growing next year and beyond.

In its 2019 demand forecast, OPEC cited productivity improvements in the US shale industry as an uncertain factor. With help from rapidly expanding technological advancements like hydraulic fracking, the US is on track to become a net energy exporter for the first time since the 1950’s.

“US crude continues to be an unstoppable force for world markets,” Peterson said. “And that’s really going to be the underlying message of every concern next year.”

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