Oil prices are being tugged in both directions, by glut and trade war fears on the one hand and by hopes that supply shortages will provide support on the other.
One month ago, on 6 May, Brent traded at $71.24 and WTI at $62.25, while three months ago, on 4 March, Brent was worth $65.67 and WTI $56.59.
Factors in contention
In other words, prices have gone pretty much nowhere since the early spring.
A year ago, on 4 June 2018, Brent changed hands at $75.29 and WTI at $64.75. Across the course of those 12 months, both Brent and WTI hit their high point on the same day, 3 October, when Brent reached $86.29 and WTI $76.41.
For oil traders, the problem is that there are good reasons to expect both a rise and a fall in the price, so the two are in contention most of the time. The case for a price increase springs from three main sources.
One is the package of cuts agreed by the 14-nation Organisation of Petroleum Exporting Countries (OPEC), the first of which was signed in December 2016. A new agreement came into force in January to take 1.2 million barrels a day out of production.
Although this amounts to just about 1.2% of total production, global supply and demand is very closely balanced, at about 100 million barrels a day, so quite small changes in supply can have a big effect on the price.
In total, 25 countries are involved in the agreement. OPEC includes Saudi Arabia and Iran, while the so-called NOPEC group, whose members have not joined OPEC but who are sympathetic to the cartel, takes in Russia and Oman.
“Downside risks still prevail”
Two more sources of support come from US sanctions against two major producers, Iran and Venezuela.
One is his support for expansion of the US shale oil industry, which depresses prices by increasing supply.
A second is his policy of trade confrontation with countries, notably China. Trade spats have a tendency to slow down economic growth, and that, in turn, raises the prospect of reduced demand for oil.
A third is Mr Trump’s own practice of directly urging OPEC to increase production to hold down fuel prices at American filling stations. On 26 April, he disclosed: “I called up OPEC. I said, ‘You’ve got to bring them [fuel prices] down.”
OPEC’s own view is reasonably positive. It said: “The global economic growth estimate remains at 3.6% for 2018 and is forecast to grow by 3.2% in 2019, unchanged from the previous month’s assessment. Improving growth trends in some economies point at some stabilisation on a global level, but downside risks still prevail.”