A Christmas Eve Low In Crude Oil

The price of crude oil can be highly volatile for a myriad of reasons. The energy commodity reflects the global economic landscape. During periods of economic growth, demand tends to rise causing higher prices. Economic contraction often has the reverse impact on the price of oil. Since the Middle East is home to more than half the world’s oil reserves, the political temperature in a highly turbulent region can influence prices dramatically at times. Since China is the world’s most populous nation with the second largest GDP, demand for crude oil from the Asian country can cause shifts in the fundamental equation.

The crude oil market changed dramatically over the past years. The international oil cartel has lost a lot of its influence as U.S. output grew to a level where it joined Saudi Arabia and Russia as a leading producer. In the past, OPEC production policy decisions made at their biannual meetings in Vienna the price of oil is a function of decisions made in Washington, D.C., Moscow, and Riyadh, Saudi Arabia. In 2018, U.S. output in crude oil rose to 11.7 million bpd which was more than both Russian and Saudi daily production. Technological advances in fracking in the shale regions of the US, regulatory reforms, and a pro-energy administration have made the US a rising power on the production as well as the consumption side of the fundamental equation for the energy commodity.

In February 2016, the price of nearby NYMEX crude oil fell to its lowest level since 2003 at $26.05 per barrel as the Saudis and OPEC attempted to flood the oil market with output to put the US shale production out of business. The strategy not only failed, but it was a disaster which led to Russian intervention and production cuts by the cartel. As OPEC lowered their output and the global economy grew, demand increased and the price of crude oil entered a bull market period that took the price of NYMEX crude oil to a high at $76.90 per barrel on October 3, 2018, which was almost triple the value at the beginning of 2016, less than three years before the peak. When crude oil was near the high, many analysts were looking for a return to triple-digit oil prices as US sanctions on Iran were to take effect in early November. However, the US administration did not want to see the price of oil rise and consistently pushed the Saudis and other OPEC allies to increase their production…

 

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