Oil prices are caught in a tug-of-war between fears of a global recession and hopes that energy producers will unveil further production cuts.
Complicating the picture is the tension in the Persian Gulf over tanker seizures and other alleged interference by Iran with international shipping.
No decisive momentum
One year ago, on August 13, 2018, Brent traded at $72.61 and WTI at $67.20. But although these are significantly higher than today’s prices, there may be some comfort for “oil bulls” in the shape of the chart.
True, the 12-monthly high was seen towards the start of the 12-month period, on October 3, when Brent and WTI changed hands at $86.29 a barrel and $76.41 respectively. But the 12-monthly low was recorded as far back as December 24, when Brent traded at $50.47 and WTI at $42.53.
Since then, Brent has traded broadly between $50 and $70 and WTI between $50 and $65, with no decisive momentum upwards or downwards.
A month ago, Brent was trading at $66.48 on July 15 and WTI at $59.58. Going back three months, Brent was worth $70.23 a barrel on May 13, while WTI traded at $61.04.
Fears of a worldwide economic slowdown, triggered in part by the U.S.-China trade war, have weighed on prices, given that oil remains the key ingredient in powering modern industrial economies and demand would fall during a downturn.
But market watchers believe the 14-nation energy cartel, the Organisation of Petroleum Exporting Countries (OPEC) may unveil further output cuts on top of those already agreed in order to support the price. Earlier this summer, OPEC and sympathetic non-member crude producers in the so-called NOPEC group agreed to extend until March 31 next year a package of production curbs first agreed in late 2016.
The deal cuts world output by about 1.2%, or 1.2 million barrels a day. This sounds modest, but given supply and demand are tightly aligned at about 100 million barrels a day, even small changes can affect the price.
Now it is being suggested that the OPEC-NOPEC alliance may agree further production cuts or, as an alternative, tighten observance of the existing curbs.
One already-existing support for the price comes from the U.S. sanctions against two OPEC Members, Iran and Venezuela, which takes supply off the market.
Meanwhile, amid escalating tensions in the Gulf, the 100,000-ton American aircraft carrier Lincoln is leading a mixed group of warships to defend commercial shipping in the area. Britain’s destroyer HMS Duncan has just been relieved by the frigate HMS Kent. Another frigate, HMS Montrose, is in the area.
By coincidence, U.S. Energy Secretary Rick Perry served as a U.S. Air Force pilot in both Europe and the Middle East.
Of the countries involved in the production cuts, OPEC members include Saudi Arabia, the United Arab Emirates, Nigeria and Libya, while NOPEC includes Russia, Mexico, Malaysia and Oman.