In 2018, the price of WTI crude oil started at about $60 a barrel. The price rallied to a YTD high of $76.9 in October. At this time, investors were optimistic that the price would continue rallying and the hopes were that the price would reach $100 a barrel this year. The rally was driven by a number of things. First, investors were hopeful about global growth. Second, there were hopes that the Iran sanctions would lead to a supply shortfall.
These ideas were deconstructed for a number of reasons. First, while global growth has continued this year, the outlook for the performance of the economy in the coming year has been reduced. Investors have been warned that the ongoing trade conflict will have serious consequences to the economy. In fact, the numbers released in November have shown a systematic decline in growth. Second, the Iran sanctions attracted more supply from OPEC and other oil producing countries. In November, Saudi Arabia oil minister said that the OPEC members were pumping as much oil as they could. This, in addition to the waivers the US gave out led to a sharp decrease in the price. The price of WTI declined from above $76 to a low of $48. Brent on the other hand declined from $87 to a low of $57.5.
2019 will be an interesting year for crude oil for a number of reasons. First, a number of pipelines under construction in the US will be complete. This means that US producers will continue pumping and increasing the amount of oil they are producing. This is an important piece of information because in the past, US production has been hampered by a lower number of truck drivers. With pipelines completed, the country will continue boosting production.
Another important thing is that global growth is expected to cool down in 2019. This cooling down will be led by the United States, where the benefits of the tax reform package will have reduced. The same is true with other regions. A slowing global growth tends to lead to lower demand for crude oil. Slowing demand on the other hand leads to lower oil prices especially at a time when the supply is increasing. Therefore, this could lead to a continued pace of lower oil prices.
However, with Saudi Arabia planning to list Saudi Aramco, lower oil prices are not ideal. This is because companies tend to list when the conditions are right. As the de facto leader of OPEC, Saudi has the tools hike oil prices. In the past, the rulers have said that they are comfortable with crude oil at $70. Therefore, it is right to say that Saudi will do whatever it can to push the prices higher while at the same time doing the best not to offend the US president. In addition, a democrat-controlled congress could still push for heavy sanctions on the country which could lead to a retaliation from Saudi Arabia. If this happens, the price will likely continue heading higher. Couple this with the fact that all oscillator indicators show that the price is increasingly oversold.