Why The End Of The Longest Oil Bull Market Since 2008?

In the past two years, crude oil has steadily advanced, supported by global recovery. But in just 10 days, oil has posted the longest losing streak since mid-1984 – thanks to overcapacity and the Trump trade wars.

Half a year ago, crude oil prices were expected to climb from $53 per barrel in 2017 to $65 per barrel by the year-end and to remain around that level through 2019. By mid-October, crude had soared to $75 and the rise was expected to continue.

Yet, in just 10 days oil has fallen to less than $60. Oil prices are in a bear market one month after four-year highs. The question is: Why?

Oil’s short-term fluctuations

The simple answer is that until mid-October the escalation of US-Sino trade tensions, despite President Trump’s vocal rhetoric, seemed to be manageable, which supported global prospects. Yet, the US mid-term elections have contributed to growing volatility and uncertainty.

Trump’s illicit decision to withdraw from the Iran nuclear deal (JCPOA) contributed to the upward oil trajectory, along with the expected supply disruptions in Venezuela which is amid domestic economic turmoil and US efforts at regime change.

As US-China tensions continue to linger and bilateral talks have not resulted in tangible results, expectations have diminished regarding the anticipated Trump-Xi meeting in late November. Consequently, global recovery no longer seems as solid as analysts presumed only recently. Even signs that OPEC and other oil producers including Russia could soon cut output have not put a floor under the market.

Also, Trump’s concession, after heavy pressure by Brussels, to allow Iran to remain connected to SWIFT, which intermediates the bulk of the world’s cross-border dollar-denominated transactions, has contributed to more subdued oil price trajectory.

Another supply-side force involves US crude inventories that have been swelling. These stockpiles rose by 5.7 million barrels toward the end of October, although gasoline and distillate supplies shrunk, according to American Petroleum Institute. US production is reportedly rising faster than previously projected.

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Disclaimer: Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute ...

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Mike Faragut 2 months ago Member's comment

Very insightful look at $OILB, thanks.