Four Reasons Why Crude Oil Price is Rising – Introduction
This year, the price of crude oil has been on an upward trajectory. The price of the West Texas Intermediate (WTI) and Brent has gained by more than 20%. This means that the price has beaten most of the other asset classes. Crude oil has also beaten palladium, which is the best-performing metal that has gained by more than 13%. This article will explain a few reasons why the price of crude has continued to do well.
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OPEC Supply Cuts
In the December meeting at Vienna, OPEC members announced that they would reduce the supplies. The goal of the supply cuts was to rebalance the production and increase the price, which had fallen to less than $50. Recent reports from OPEC indicate that the members have followed through with the supply cuts. Saudi Arabia has been a major factor in this because it has significantly reduced the supplies by more than a million barrels per day. As you already know, a reduction in supplies leads to higher as buyers raise their bids.
US Production Priced In
In recent months, the United States has continued to increase production of crude oil. In fact, a recent report said that the country will reach more than 13 million barrels per day this year. This makes it the biggest oil producer after Saudi Arabia and the Russia. Last week, data showed that the country had added more wells. While the increase in US production is a source of worry for crude investors, the fact is that the price has already been priced-in. This means that since investors already anticipate the increased production, more news of increased production will not matter a lot to them.
Venezuela is the biggest oil country in the world. It has more oil reserves than the United States, Russia, and Saudi Arabia. However, the country has been under a lot of pressure as the population loses support of the population. Last month, the parliament’s leader declared himself the president and received support from other Latin American countries, Western countries, and the United States. To increase pressure on the Maduro regime, the US slapped sanctions on the oil industry. This is intended to reduce the funds supplies to Maduro. These sanctions have removed some of the oil in the market.
In recent months, the forecast for global growth has been reducing. IMF, World Bank, BOE, ECB, and the Fed have all reduced the forecasts. This has mostly been blamed to the increased tensions on trade. A slow global economy means that the demand of oil could be reduced. As such, traders believe that the trade talks between the US and China will yield fruits. They believe that Trump and Xi are all under pressure. Trump is facing a re-election in 2020 while Xi is under pressure because of the weak economy. The talks between the two countries matter because China and the US are the biggest economies in the world, with a combined GDP of more than $30 trillion.