By Deepta Bolaky
Deteriorating demand and rising global output are the main factors that sent the WTI Crude into a bear market territory. There is a shift of sentiment in the oil markets. The US sanctions have been the primary influence behind the rally in oil prices, and now that fears have eased, fundamentals took over, and economic forces- demand and supply are driving the markets.
The US sanctions have created fears that oil supply will take a hit and will likely drop by 30% by next year. There was also resistance from OPEC members to increase the output ceiling and boost production. These downside factors have put upward pressure on oil prices. In the last couple of weeks, sentiment soured as US crude oil reaches a new all-time high at 11.63 million bpd and is predicted to break through 12 million barrels per day by mid-2019. The US sanctions on Iran will be therefore unlikely to have a significant impact on supply.
The US decision to offer Oil Waivers to different nations also came as a surprise mitigating the effect of the Iran sanctions on the global oil supply and accelerating the slide in oil prices. It appears that the waivers were put in place to avoid a shock in the market and higher prices.
The concerns over global economic growth are forcing traders to reduce their projections for oil demand. Trade tensions are flashing warnings that could dent the world’s oil demand growth. A slowdown in global economic growth, consumer spending, investment flows and a rising US dollar are leading to mounting uncertainties around the demand for oil. The demand shock is boiling over slowly, and the effect will likely be felt over time.
It is too soon to know how the OPEC will react to the supply glut. Meanwhile, we will have to wait for the OPEC and its allies to discuss scenarios of cutting production again next year.
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