Nov 14 2018

Crude reality

Oil, after hitting a 4-year high six weeks ago, is reversing dramatically, losing close to 20%; a large part of that reversal (7%) happened yesterday.  Just recently, crude prices and the dollar index together were proving to be a nightmare to oil importing countries (and India topped that list).  There were fears that shortage in supply will push the crude through the roof and murmurs had it that $100 can’t be ruled out (it had reached $87). What changed all of a sudden?

Renewed US sanction on Iran was a looming threat in September and October.  Iran is the third largest producer amongst OPEC countries and losing 800,000 a barrel a day, post US sanctions would have meant stress on the supply.  Sanctions are in place but US has exempted 8 countries for the time being and allowed them to continue importing from Iran – now that’s a relief, albeit temporarily.

US and Russia have been pumping at a record level, more so after being spooked by the increase in oil prices.  This has almost created a supply glut to the extent that Saudi Arabia said that it might reduce oil production, though Trump has responded almost condemning it.

With currency rut and oil price increase creating havoc for some of the oil importing countries, forecasters fear that, in the coming months, oil consumption may actually come down in developing nations, dampening the prices further. While the consumption would actually drop or not is outside the purview of this article, the sentiment has turned in favor of consumers is the reality.

All of the above factors have resulted in oil price slipping at a rather quick pace; given the price rise has been pretty swift, some reversal was warranted. Up to what price point will the oil producing countries will put up is anybody’s guess.  For now we can heave a sigh of relief!