31.10.2019 – Special Report. The scenarios of doom are accumulating: the price of oil is on the brink of collapse. Because the shale industry in the USA has to get the hell out of it. As always, discipline within OPEC leaves much to be desired. And a global recession is quite possible.
Crash cocktail for crude oil
Drastic warning of the end of the oil world as we know it: Journalist Julianne Geiger recently brought a price of 10 dollars a barrel into play on Oilprice.com. “Is $10 oil really possible?” Absolutely. A crash is inevitable when the following factors coincide: Above all, high OPEC production, high US production, high inventories, a collapse in demand, capitulation by speculators.
In fact, the International Energy Agency has consistently lowered its forecasts for an increase in demand in the current year – from 1.4 million barrels per day in January to only 1.1 million at last. OPEC, too, had repeatedly pushed down its growth forecasts for demand. All in all, the scenario is as follows: persistently weak demand with robust production.
In fact, Keisuke Sadamori, Director for Energy Markets and Security at the International Energy Agency (IEA), warned CNBC of an impending oil glut in the coming year. The reasons are continued uncertainty in the global economy and the Brexit.
Is history repeating itself?
A decade ago, traders had to find out what was possible. At that time, the oil price slipped from over 140 dollars per barrel in 2009 to below 40 dollars in 2008. Wasn’t there something? Right: A financial crisis that shook the banking world. And the real economy was there too. And what the closing of long positions in the oil market entailed. This is also possible today: it was not until September of this year that the credit crunch in the American interbank sector, which had recently eased again, signalled that enormous mistrust still prevails among commercial banks. The assumptions about the reasons range from the overturning of large equity managers to the bursting of the bubble in collateralised loan obligations.
Threatening demand shock
And in 2014/15 the scenario repeated itself almost to the same extent: the oil price slipped from over 100 dollars to under 30 dollars. At that time, major importers such as China and India were experiencing an economic slowdown. At the same time, US production was booming during the fracking boom. The current oil price of around 55 dollars per barrel of WTI and 60 dollars per barrel of Brent is a long way from the peaks of the time. But actually, demand appears to be in jeopardy at the moment: The outlook for the global economy is clouding over. A trade agreement between Beijing and Washington is anything but certain.
Preprogrammed Oil Glow
This is accompanied by problems on the supply side. OPEC is not cutting production fast enough – especially as the socialist paradise of Venezuela and Iran, ruined by the mullahs, urgently need foreign exchange. It is anything but certain that the OPEC+ will agree on a drastic quota cut in December. Russia, in particular, wants to put an end to US competition with a persistently low price. Deputy Russian Energy Minister Pavel Sorokin just told the news agency TASS that it was too early to discuss deeper cuts. Nigeria has also negotiated a secret exception with the cartel, Reuters reported. Especially as the maltreated Libya and Iraq want to increase their production and are likely to do so.
Democrats unintentionally push shale oil
And Oilprice.com just reported an interesting political effect in the American oil market: The hardcore communists among the Democrats have come out in favor of a fracking ban. Senator Elizabeth Warren from Massachusetts and Senator Bernie Sanders from Vermont want to ban hydraulic fracturing in the event of an election victory in 2020. Of course, there is no oil industry in their states and nobody loses their job.
But the democratic presidential candidates have accidentally achieved what they actually want to prevent: They have boosted US oil production. The small shale drills in particular now have to forestall a ban and build up stocks. Especially since the financing crisis is forcing many small companies to increase their output anyway. Because if you don’t get any more money from the bank, you have to make more turnover than the quantity.
Goldman Sachs warns against 20 dollars per barrel
All in all, the risks of an oil price collapse are real. Goldman Sachs has also recently made statements in this direction: after the Oil & Money Conference in London, analyst Jeff Currie said in an interview with CNBC that there was a risk of 20 dollars per barrel. And that as soon as every oil tank, every stock on the planet is full – and as soon as there is no more free storage capacity.
A bull market is also possible
But the dead live longer: the price of oil could of course escape the threat of Armageddon. If a wave of bankruptcies at small US companies eliminates the oversupply on the American market. And if China and the USA do agree on a customs deal. And if the world doesn’t slide into a recession after all. And if OPEC and its allies cut production quotas.
And especially when war breaks out in the Middle East. Here’s a little factlet: In view of the threat from Iran, there is currently a thaw between some Arab states and Israel. While most Islamic countries are still adhering to the racist practice of rejecting every entry with an Israeli stamp in their passports, this time an Israeli representative took part in the conference Working Group on Maritime and Aviation Security in Bahrain, as reported by the Times of Israel. Let’s see what happens here. Currently, Israel has diplomatic relations with only two Arab states – Egypt and Jordan. But the same interests as Saudi Arabia exist in view of the danger of an Iranian atomic bomb. When the powder keg explodes, the price of oil rises.
The Bernstein Bank also keeps an eye on this asset for you – and wishes you successful investments in oil when you trade CFDs.
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