The Fuse

The Oil Market’s Wild 2018 Ride Shows No Sign of Slowing in 2019

by Alex Adams | @alexjhadams | January 04, 2019

From its early gradual climb to precipitous late drop, the oil market in 2018 was like a wild rollercoaster ride. Uncertainty over Iran sanctions, high inventories, new non-OPEC supplies, and continued increases in global oil demand growth weighed on prices, sinking Brent crude oil to a yearly low of $51 per barrel in late December after having reached $86 per barrel as recently as October.

This turbulence was captured in the diverse range of predictions in the 2018 oil price bet. As noted previously in The Fuse, in a contest organized by SAFE’s former Vice President of Communications and Content Leslie Hayward, the oil price bet invites industry watchers to predict the price of ICE Brent for December 31 of the upcoming year. The wide range of prices offered by participants reflected a lack of consensus over the direction oil prices in 2018, with predictions as low as $39, to as high as $81. This was a remarkable $42 per barrel spread.

The winner of the 2018 bet was Platts oil reporter Brian Scheid, whose prediction of Brent crude finishing the year at $57 per barrel was the closest to the actual year-end price of $53.80 per barrel.  Congratulations, Brian!

In the midst of a tumultuous 2018, some commentators said predicting the year-end price was a “total crapshoot.” Prices rose to a four-year high in October, before plunging more than $30 in the following months. As oil pushed beyond $85 per barrel in October, analysts believed that $100 oil was “not out of the question,” with some observers expressing concern the market may be undersupplied. As late as November 2, analysts and market watchers wondered if U.S. sanctions on Iran’s oil exports would push prices to more than $100 per barrel.

However, as the United States announced it was to going to issue many more, and much larger waivers to key customers of Iranian oil to stop oil prices from rising, crude began to plummet.

What will 2019 have in store for the oil market? As indicated by the wide spread of the 2019 oil price bet, the market is set for another year of uncertainty. Now in its fifth year, analysts and observers predict a 2019 ending price in a $50 per barrel range, from a low of $28.75 to a high of $78.37. Chris Nelder, the 2017 winner, explains in a post that he has opted for $47 as he anticipates a bear market dominated by concerns over weak demand. “Supply-side factors are exerting less influence on the market than the demand-side ones,” he explains. “Technical analysis says that the stock market officially entered bear market territory in late December, ending the longest bull run since 1945 … And bull markets usually take a while to reverse course. Plus, there are many reasons to think the equity markets have become wildly overvalued and are poised for a very steep correction.”

Predicting that Brent will end the year at $67.25, analyst Jamie Webster suggests 2019 holds greater uncertainty, factoring in lower annual demand expectations that are likely to rise at the end of the year as new International Maritime Organization’s new fuel sulphur cap takes effect January 1, 2020. Webster says the Crude Oil Volatility Index, a measure of the 30-day volatility of the global crude oil price, is likely to remain above the 2018 average, but within its 5-year band.

These uncertainties highlight the challenges of predicting oil market fluctuations. Neil Atkinson, the head of oil markets at the International Energy Agency, told Bloomberg that there are “major uncertainties” and forecasting trends in 2019 is “even more hazardous than usual,” with ConocoPhillips CEO Ryan Lance adding that geopolitical uncertainty is also a serious risk to the industry.

If informed observers cannot predict prices, imagine the uncertainty for U.S. oil producers, consumers, and investors, whose business decisions depend on stability in global prices.