3 Key Drivers Of Oil's Current Volatility (And Why It Will Continue)
Ellen Wald | Apr 25, 2018 10:01
Thanks to OPEC and President Donald Trump, oil prices took a big dip last Friday before rising steadily to new highs on Monday.
We can expect more volatility in oil markets over the next few weeks as OPEC’s outlook and policy for the second half of 2018 come into sharper focus, the Trump administration makes pivotal decisions with regard to sanctions on Iran and we see signs of rising oil production from the United States.
The Joint Ministerial Monitoring Committee (JMMC) for the OPEC / non-OPEC production cut deal met in Jeddah, Saudi Arabia, last Friday to assess the compliance rates of participants and discuss the organization’s progress towards meeting its goals. The JMMC congratulated participants on very high compliance rates (149%) while noting that Iraq and Kazakhstan were still producing more oil than their quotas allow.
None of this seemed to matter to the oil market, which was looking for signs of whether OPEC and Russia intend to continue the production cuts into 2019. Instead of greater clarity, the Russian and Saudi oil ministers appeared to diverge on whether production cuts should continue or not.
Saudi oil minister Khalid al Falih hinted that OPEC would seek to continue with the current production cuts when he told reporters that oil inventories still remain higher than before the price crash in 2015. He said that “the inventory drawdown needs to continue,” but added, “we are not decided yet on precisely what is the target.”
Despite the fact that there is very little President Trump can do to change OPEC’s actions and decisions, markets reacted immediately to his tweet. WTI futures, which had been as high as $68.29 per barrel, immediately fell to $67.50. News that rig count in the United States had increased last week by five also kept prices depressed on Friday.
By Monday, however, the market seemed to have shaken off both the President’s tweet and the higher rig count. WTI erased Friday’s losses and continued to gain steam, reaching $68.95 per barrel by Monday night. Futures surpassed the $69 per barrel mark in early morning trading on Tuesday but remained volatile.
Now that oil supply is much tighter, the market is reacting more significantly to small issues like tweets from President Trump that have no actual impact on oil markets. If these conditions continue, which seems likely at this point, we should see even stronger short term reactions to policy decisions and statements. In fact, President Trump told the press that “nobody knows” what he will do regarding Iran on 12 May.
Get The App
Look for oil price movement based on speculation about President Trump’s upcoming decision on U.S. sanctions towards Iran, any news about the summit on North Korean nuclear disarmament and continued hints from Novak, al-Falih and other OPEC participants.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.