Oil Weakness Continues Into 2019, Though Some See An Upside

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Oil prices opened in 2019 significantly lower than where they were on January 2, 2018. WTI started off at $45.81, 24% below where it started on the first day of trade in 2018. Brent opened at $45.15, 19% lower than where it began 2018.

Oil Weakness Continues Into 2019, Though Some See An Upside

Brent Weekly

On the bright side, both of these benchmarks are higher than the Canadian benchmark, Western Canadian Select (WCS), which closed the year at $29.48.

So far, oil markets are proving just as volatile in 2019 as they were in 2018. As markets opened on January 2, oil seemed poised to continue its downward slide. However, prices suddenly turned around and jumped by nearly 3% for both Brent and WTI, before heading back down.

This kind of volatility is the result of two factors. The most important is financial speculation. The second is uncertainty over the health of the global economy in 2019. Both of these factors are driving oil’s spikes and dives at the moment. The good news for traders though, is that there is money to be made (and lost) in this volatility.

There are two individuals who seem unequivocally positive about oil in 2019—but on opposite sides of the coin. Both U.S. President Donald Trump and UAE oil minister Suhail Mazroui took to twitter to express their optimism for oil in 2019. Mazroui is looking forward to higher prices, while Donald Trump is excited about the low gasoline prices American consumers are seeing.

Even though the last OPEC meeting, in December 2018, was essentially a disaster in terms of generating positive sentiment for oil prices, on January 1, Mazroui wrote that he is feeling very positive about 2019.

He tweeted that he remains “optimistic toward achieving the market balance during the 1st quarter after OPEC and Non-OPEC production cut.” He specifically recalled this time last year, when many analysts expressed pessimistic views of the oil market (which, Mazroui noted that OPEC did not agree with) but, according to Mazroui, 2018 turned out to be “a good year” for oil.

For context, Mazroui, (unlike other OPEC oil ministers), always says that he is optimistic that whatever problem OPEC is facing will be resolved. Traders should therefore not read too much into his optimistic twitter comment.

However, it is interesting that Mazroui considers 2018 a success in terms of oil prices. The assumption is generally that OPEC ministers seek stable oil prices within a range that is not so high that it damages demand but also not too low to cover the country’s budgets. 2018 saw major volatility in oil prices, and even though Brent did hit highs in the $80 range in October, it quickly dropped below the $70 per barrel mark. Mazroui may simply be expressing his optimism that after Q1 2019, prices will start to head higher despite continued volatility, or he may be trying, through his position, to move the market.

On the other side is Donald Trump, who used his twitter account to argue unrelentingly for lower oil prices in 2018. On January 1, 2019 he tweeted that he is optimistic that the significantly lower gasoline prices consumers have seen in December 2018 as a result of lower oil prices will continue in 2019.

He sees lower gasoline prices as akin to a “tax cut” for Americans. According to GasBuddy, 42% of gas stations in the United States are selling gasoline for under $2 per gallon right now.

This is indeed a bright spot for consumers. According to GasBuddy’s 2019 forecast, the average national price for gasoline will likely be slightly lower than last year’s. However, consumers and traders should be aware that even though gasoline prices are low now, the price of a gallon of gasoline could easily surge to over $3 as soon as May.

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