Over the past few months, oil prices have gone up and down due to a variety of reasons. At first, it was OPEC supply cuts, then it was tensions in the Strait of Hormuz.
Now, the biggest issue affecting oil prices comes down to the ongoing trade war between China and America. As bearishness in the market continues to grow, prices for oil shot up today on hopes that trade relations between the two countries might get better.
Future prices for West Texas Intermediate, the U.S. benchmark, rose by 2.4 percent to $56.21 per barrel, while international benchmark Brent crude rose by 1.9 percent to $59.74 per barrel on Monday. The main cause of this rise was largely attributed to investors responding to signs from the Trump administration that they might be dialing back their rhetoric when it comes to China.
Over the weekend, Trump administration officials said they would give Chinese telecom giant Huawei more time to work with U.S. customers while also adding that the White House was laying the groundwork for the next round of trade talks with Chinese officials. Oil prices, in particular, have been battered by growing economic worries of a recession, which would decrease demand for commodities, oil, and other raw materials.
While this has been the general trend affecting prices on a long-term level, Monday also saw another significant development reported that helped push oil prices up higher. It came out recently that over the weekend there was an attack on a Saudi oil facility by Yemen’s Houthi forces.
Specifically, a drone attack on an oilfield in the eastern portion of the country caused a fire at a gas plant. Overall, this didn’t end up having an impact on production from state-run Saudi Aramco, but what it did do was further add to the growing tensions surrounding the Middle East.
“The oil market seems to be pricing in again a geopolitical risk premium following the weekend drone attacks on Saudi Arabia, but the premium might not sustain if it does not result in any supply disruptions,” said Giovanni Staunovo, an oil analyst for UBS according to CNBC. Tensions with Iran seem to have eased a little in comparison to a couple months ago where a fresh round of tanker attacks sent oil prices skyrocketing. However, the situation still remains as precarious as ever as industry and geopolitics experts continue to hold their breath.
At the same time, OPEC recently cut its forecast for global oil demand growth down by 40,000 barrels per day down to 1.10 million barrels per day. The cartel also added that with America’s growing domestic output, the global market would enter a slight surplus in 2020.
Historically, OPEC has rarely given a bearish view of the market but many are already expecting that this announcement could be foreshadowing further supply cuts in the future. OPEC had previously stated that they would draw the line at $50 per barrel, while some analysts have argued that prices could fall as low as $30 per barrel under the right circumstances.
While over the long term prices seem likely to go down, for the short-term it wouldn’t be surprising for oil to go the opposite direction.
