Crude Oil breaks below key support price area

Crude oil is looking to literally erased all of its gains for the year 2018. Oil price is currently down by 30% since the peak set in early October (see chart below showing Brent price) as price is currently dipping consecutively for 7 weeks breaking key support price area.

Chart showing Brent Showing Price Depreciating by about $22

Source: www.macrotrends.net

This price depreciation rode on the back of a plethora of fundamental variables; viz:

  • US waiver on Iran’s sanctions
  • Global demand slow-down
  • US Supply increasing significantly
  • Overall Supply surging significantly this year

The market started to envisage global supply exceeding demand when US announced waiver on its economic sanctions on Iran. Washington had announced that some of its allies would be exempted from the expected total halt of the Iran’s oil purchase as a result of its sanctions. Earlier in the year, following the announcement of the re-imposition of economic sanctions by the President Donald Trump, market had anticipated a significant squeeze in oil supply as Iran is a major contributor to global oil output – this saw oil price surge on the back of this. Nevertheless, that bullish optimism have been seen to wane in oil price with the consideration of the waivers.

The US-Sino trade war has caused a major slowdown in global growth as economies that are highly dependent on global trade activities are seen to have reducing purchasing power as increased tariffs has artificially caused surge in prices of goods and services – top global consumers such as India and China are at the forefront of this hit.

The US is seeing unprecedented increase in oil supply as crude oil inventories and shale production are significantly coming into full-force. This fresh supply wave, in effect have caused a surge in global oil supply, hence oil price depreciation.

From an overall standpoint, global oil supply have also surged this year due to the top three oil producers – Saudi Arabia, Russia and the United States – pumping more than one-third of global consumption.

WHAT THIS MEANS FOR NIGERIA Lower oil price is quite not good for a country like Nigeria as two-third of its state revenues are literally dependent on proceeds from oil sale. Although, the Kingdom of Saudi Arabia has recently pledge to cut its production to prevent a supply glut, however, there is a little bit of skepticism to this as one of its strongest western ally, the US, would prefer oil price low. In Eastern Europe, Maksim Oreshkin, Russia’s economic development minister eventually expects oil price to drop to $50 per barrel on the longer term and expects price to remain so for a substantial period going forward.

A bit of hope for Nigeria could come with the scheduled OPEC meeting for the 6th of December as the cabal would look to urge its member states for a production cut. If this occurs, market sentiment could abruptly turn bullish for oil price. Brent price has broken below and is currently trading below a key support zone at the 65.00 price area.

1 Comment to “Crude Oil breaks below key support price area”

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