What Does 2019 Have in Store for Oil?

2018 saw the oil market embark on a proverbial rollercoaster, with West Texas Intermediate (WTI) prices gaining close to 30% between January and October to hit highs of around US$78/bbl, then tumbling to a multi-year low in December. Experts warn that the outlook isn't necessarily any brighter for 2019 and that the same forces that drove oil to a sharp low at the end of last year will likely continue to pose a threat. Furthermore, day-to-day oil prices are currently shifting by as much as 5% which mirrors an unexpected level of marketplace instability.

Analysts warn downward trends could continue

The main question on the lips of analysts is whether the economic, geopolitical and technological factors behind 2018's oil price trends are likely to endure or shift over the next 12 months. The persistent crude supply glut is one of the main factors at play, with the United States, Russia and Saudi Arabia churning out roughly 1.5 million barrels more than current consumer demand.

For American producers, the sharp spike in output has been fuelled by major advances in exploration and production technology. This has unlocked significant efficiency gains and drastically lowered break-even prices, especially within the shale industry. The trend culminated in November last year, when America exported more crude oil and refined products than it imported, which won it status as a net energy exporter for the first time in 1991.

Strong US dollar creates tension

Substantial interest rate hikes from the US Federal Reserve have fast-tracked the slip in oil prices and helped to strengthen the dollar, which in turn has damaged international demand for crude. This is particularly concerning for oil-consuming countries that experience currency devaluation, including Venezuela.

Unsurprisingly, falling consumption rates and a surplus of oil have triggered fears of a global recession. If the sentiment gains momentum analysts warn that market trends will continue a downward trajectory and as a result, oil prices will continue to drop in 2019.

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