Six factors driving oil prices in 2019        

A year ago, oil prices surged all the way up to an uncomfortable $3 per gallon in the USA so much that it saw a four year plunging that accumulated up to $30 billion in the international oil market. Many factors were at play during that volatile period, most notably the Iranian sanctions and the resultant promise by OPEC to boost production to avoid a supply shortage.

This trend appears to have continued into 2019, with many uncertainties tackling this year’s oil markets.  Although there was a relief earlier this year, especially when the US oil price went as low as below $2 in January, recent rise since mid-February has raised fresh concerns. Many factors could account for this price hype. The oil price trend shows the effect of such factors.

Now, let’s delve deep and analyze the following factors responsible for this trend ;

Low Demand: Late last year, an OPEC report suggests that there will be lower oil demand in 2019 due to various factors. One of the factors is a fall in demand for gasoline usage. In its most recent monthly Oil report, the cartel revised its demand growth forecast down by 100,000 bpd. The predictions were due to concerns regarding oversupply and relatively weaker demand. If these predictions are accurate, then falling demand growth will likely impact oil prices throughout the year.

Trade War: This is simply a row for an economic dominance, usually between two or more economic lords. To be frank, nothing disturbs the smooth flow of world trade, and the demand for different commodities including oil, than a trade war. The effect is usually amplified as it is most times between the world’s largest economies. Of course, the trade war plays a crucial role in the price of oil in the global market because these countries make up more than 30 percent of world oil demand. From oil demand to the global economy, the trade, without doubt, remains one of the most decisive factors for oil prices in 2019.

China’s Failing Oil Economy: In terms of trade battle, it may not be possible to override a particular country’s economy, but one party can suffer more than the other. This seems to be the case with China as manufacturing slows and GDP growth forecasts look bleak. According to a statistical report on CNBC Market Watch List, the Chinese stock market performed woefully in 2018, largely due to the trade war. The data measures the Consumer Price Inflation (CPI) beyond what observers had expected. We see a rising 1.9 percent against an estimated 2.1 percent inflation rise. More than what we expected, Producer inflation also seems frightening for China, rising only 0.9 percent against a 1.6 percent growth. Osama Rizvi puts it this way: “should the world’s most important consumer see an economic slowdown in 2019, the global economy and oil markets would both be hit hard.”

Global Recession and Financial Turmoil: As observed by Eshe Nelson we are currently in the longest bull market ever, a fact that may be seen as a cause for worry as we journey on in 2019. Recall that 2018 saw multiple sell-offs in the U.S. stock market primarily propelled by fear of a financial crisis, slow growth, and the trade war. The event played a crucial role in the high prices of oil. Given this economic slide in 2019, the sequence may repeat and this time, it may yield more disaster than ever. We are already seeing it reflecting in the recent fluctuations in oil price.

President Donald Trump’s Unrealistic Oil Policies: President Donald Trump announced during a cabinet meeting how his timely intervention led to a cut down on the high prices of gasoline. The oil price had experienced a reduction towards the end of 2018 from a $3 per gallon to $2.3. In his words: “People see the job we’re doing. People see that gasoline is way down. And the reason it’s way down is because I called up some of the OPEC people, I say ‘don’t do it. And made calls and I say, ‘you better let that oil, that gasoline flow.’ And they did.” However, his oil game will eventually become more detrimental to the US oil industry, economy and the global oil market at large. Reasons being that to achieve that feat, sanctions on Iraq has to last longer than necessary. While the sanctions have already proven a key factor in determining the prices of oil this year, an attempt by Washington to renew waivers already granted to Iranian buyers is widely unrealistic. Furthermore, the US will have to increase its 2 million barrels per day supply as against an initial 13 million. Saudi Arabia will be laden with the burden of “cleaning up the mess” by producing three times its usual oil production. From the look of things, Saudi Arabia is not so generous enough to shield the US from this impending danger which has already started surfacing. The reason is simple! When prices come crashing, Saudi Arabia will definitely be at the receiving end of losses more than the Trump-led US, hence the inconsistency in oil price.

OPEC Production Cut: In December 2018, OPEC published a report on how it intends to cut production to 1.2 million barrels per day. The meeting between OPEC and non-OPEC members comes at a time when the oil market is near the bottom of its worst price plunge since the 2008 financial crisis. Oil prices have crashed around 30 percent over the last two months, ratcheting up the pressure on budgets in exporting The effect of that cut is that, at January this year, a barrel is worth $58 dollars, a plunge from an initial $30 a barrel. Unless OPEC devices a means to stabilize production activities in response to the oil price, there may to a colossal fallout in oil prices which may affect the world at large.

While this list is far from exhaustive, it contains the most significant oil price catalysts to watch as 2019 progresses. Will the interplay between these factors impact much in the global oil market? Only time will tell. However, each has a strong influence on how oil prices sail this year.