Crude Oil: Is it all but over?

By Mr. Benjamin Lu

Market Summary for 2018

A rapid turn of events has brought severe bearish influences on global oil benchmarks in Q4 2018. ICE Brent and NYMEX WTI slammed collectively as both benchmarks demonstrated for a 25% and 28% loss in market value. Weaker economic projections and a slump in global equities triggered a massive sell-off as investors fretted over the possibility of weaker fuel demand. With OPEC moderating production levels to stem excessive weaknesses in oil prices, what are the key variables for oil in 2019?

OPEC+ Production Cut

OPEC+ has sought to reduce output levels as crude oil prices demonstrated for looser market fundamentals in Q4 2018. The cartel has agreed to moderate output to re-balance oil markets as global oil benchmarks wiped out entire gains this year. Though we remain optimistic on crude oil prices in, we call for caution as rising structural risks and a growing divide between members will impede exponential gains in 2019. Oil margin against market share considerations will plague the consensus on policy-making decisions by OPEC+ as we move beyond 2018.

US Shale Oil Production

Oil output has surged exponentially in the seven major shale formations as the US transformed into a net exporter of refined petroleum products. The US has overtook Saudi Arabia as the 2nd biggest producer of crude oil in 2018 with its eyes on the top spot as Russia prepares to scale back on output levels. Though US Permian Basin transportation issues is expected to slow output levels in 2019, slowing global economic conditions and rising US production remain a key threat towards solid oil prices in the longer term.

How can investors express a view on crude oil prices?

Oil prices will show for marked volatility in 2019 as OPEC+ seeks to moderate oil prices through supply cuts. The effects of US sanctions on Iranian production, the potential of weaker fuel demand and rising US production gives rise to the potential of event-driven rallies.

Investors who wish to express a view on oil markets are able to do so through derivatives trading. Phillip Futures offers crude oil futures to investors who wish to gain exposure in the energy markets. Do join us at our upcoming seminars to learn the market outlook and how to get started.

 

Mr. Benjamin Lu
Benjamin is a commodities analyst with Phillip Futures Pte Ltd. His main area of expertise is in commodities, with a primary focus on Crude Oil and Gold. He publishes daily market commentaries and conducts public seminars for both commodities regularly. Benjamin has worked on quotes which have been featured on Bloomberg, Business Times and Lianhe Zaobao.

Prior to his career with Phillip Futures, Benjamin plied his trade as a Commodities Trade Executive, dealing with the physical trading of cement-based raw materials in Asia.

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