Despite the efforts of oil exporting powers inside and outside the Organisation of the Petroleum Exporting Countries (OPEC) to hold on to oil prices, the world “black gold” market still tends to plummet. Since the beginning of the summer, oil prices have only fluctuated between US$57-65 per barrel, much lower than the expectations of the world's major oil exporters. Crude oil prices plunged amid the trade war between the US and China, causing confusion in the global financial markets. In addition, investors are concerned about the ongoing geopolitical tensions between Iran and the US, along with complicated developments in the Gulf.
According to analysts, tensions in the Strait of Hormuz, a route which transports nearly 20% of the world's oil and 30% of the liquefied natural gas, have only partially affected the price of oil. The "black gold" market is affected by many other adverse factors, including two key factors: the US' increase of oil production and the US-China trade war.
Data from the US Energy Information Administration (EIA) showed that in May 2019 alone, US exploitation output reached 12.1 million barrels a day, an increase of 1.7 million barrels over the same period last year. Over the past several months, US crude oil production has been almost systematically exceeding the forecast. This leads to the fact that although the US still imports a small amount of crude oil, their export is increasing, causing the world supply increase significantly.
Meanwhile, the US-China trade war seems to threaten oil demand. Observers said that this trade war would reduce China's oil demand in particular and the world’s in general. Currently, China is the largest oil importer in the world, consuming up to 20% of global oil exports in 2018.
The downward trajectory of oil prices is also affected by significant signs of economic downturn. The US-China trade war is becoming increasingly fierce, causing the International Energy Agency (IEA) to reduce its forecast for growth of global oil demand in 2019 and 2020. The IEA's monthly report recently adjusted the growth of global oil demand in 2019 to drop 0.1 million barrels to 1.3 million barrels per day. According to the IEA, growth of world oil demand is at its lowest level since the 2008 financial crisis.
Global oil demand also grew very slowly in the first six months of 2019. From January to May, oil demand increased by 520,000 barrels per day, the lowest increase in this period since 2008. Notably, in May alone, global oil demand decreased by 160,000 barrels per day when compared to the same period last year.
Additionally, the world oil market is also affected by geopolitical factors. Therefore, oil prices will be very unstable if the risk of conflict between Iran and the US increases. This aspect can sometimes be the main factor driving oil prices back up. Meanwhile, OPEC and Russia have also decided to maintain strict policies to cut oil production of members to push oil prices up. This policy has caused the oil market to fall into a slight scarcity in a short time due to a decrease in supply.
Although relevant countries have introduced policies to stabilise oil prices, the oil market has not shown any signs of stability. The IEA said that the difficult prospect of an agreement between China and the US on the trade issue could lead to a decline in trade activities and a weakening of oil demand growth. However, developments in the oil market depend on many other factors, including oil security issues in the Gulf, amid escalating tensions between the US and Iran, an important member of OPEC. A series of objective factors are strongly affecting the psychology of investors and the “black gold” market is forecast to be unstable with potential risks in the near future.
