Trends that Contribute to Oil Market Volatility
As mentioned in the previous Oil Check, the price of gas depends on a number of factors. Supply and demand has a large impact. Luckily for suppliers, demand outlook remains strong. But demand also depends on multiple factors that track with the state of the global economy. If demand falls off, there are risks of oversupply. When there’s too much supply, prices will drop. Here are some of the most notable oil demand trend contributors that could impact oil market volatility:
Following the end of the Iran Deal, President Trump promised sanctions on any country that continued to purchase oil from Iran. Well, China and India, two of Iran’s largest oil clients, may not entirely stop their purchases. If that ends up being a long-term trend, those sales would help ease global demand.
Rising Interest Rates
Although the outlook for global oil demand growth remains strong, this depends on continued economic growth in emerging markets. This is becoming less predictable because capital could continue to flee emerging markets due to rising interest rates from the Federal Reserve, U.S. corporate tax cuts and U.S. tariffs.
Global Economic Health
The IEA lowered its demand forecast for 2019 based on multiple economic indicators. There are concerns over a growing list of economic indicators that includes the U.S. housing market, increasing interest rates and a strong dollar that is creating currency pressure that makes oil prohibitively expensive in some emerging markets.
But these aren’t the only factors that make the oil market so volatile. As mentioned in the previous Oil Check, there isn’t a lot of predictability in global oil markets. In recent history, there have been a number of events creating tension in geopolitical relations. Uncertainty factors that could have an impact on the oil market include:
U.S. and Russia Relations
Russia has become more adversarial at times and remains terse. Who know what will happen in the years to come.
There is speculation that Iran could take military action to disrupt crude oil exports from other countries, that pass through the Strait of Hormuz, a key shipping lane. This could lead to further tightening global supply as it is estimated that 30% of the world’s crude oil passes through this maritime chokepoint.
U.S. and Saudi Arabia Relations
Tensions are high over the disappearance and evident death of Saudi journalist Jamal Khashoggi. With evidence of a crime perpetrated in the Saudi consulate in Turkey rising, these tensions could escalate.
If relations deteriorated with either of these nations it could result in U.S.-led oil sanctions. That would have a dramatic effect on oil supply. But these top producing countries aren’t the only ones with the power to tip the scales. Disruption in other oil-producing nations like Libya could also upset the fragile balance between supply and demand. Additionally, U.S. tensions with OPEC-plus create a risk of resurrecting the ‘oil-as-weapon’ concept, or an embargo against U.S. oil. This stance has not been taken since the 1973 oil crisis. While that is not an immediate threat, it is something analysts are watching for.
Following a less catastrophic hurricane season than years past, the price of gas is projected to remain the same until the close of 2018. If any of the afore-mentioned possibilities or unmentioned events change that, you can find out how it affects oil market volatility and what impact it has on your business in Oil Check. Until then, subscribe to our blog to stay in the know.