In 2018, the price of crude oil had an interesting year. After rising steadily to the highest levels in three years, the price started crumbling in early October. This happened after the United States offered a number of countries waivers to continue doing business with Iran. Initially, investors expected the withdrawal of Iran to lead to less supplies. Instead, OPEC members and Russia continued to boost production. The United States too continued increasing its supplies leading to a glut in production.
At the same time, global growth was forecasted to start slowing down. An increase in supply of any commodity at a time of weaker demand leads to weaker prices. This is because the buyers have multiple choices of where to buy their commodities from.
There are signs that the global growth is softening. In fact, a report by IMF in the final quarter of the year predicted that the global growth was softening. Central banks too have warned that the global growth will start easing this year. Earlier today, the manufacturing PMI data from China showed that the manufacturing industry was softening. The PMI contracted to below 50 for the first time in more than 15 months.
This led the price of crude oil to continue moving lower by more than one percent. The yearly chart below shows the declines in the price of Brent, the global crude oil benchmark. This price is below all the major moving averages with the RSI moving closer to 40. Despite of all these, there is a likelihood that the price of crude oil is nearing a bottom. This could see it rise in the first quarter.