London (GC Intelligence) — 13/11/18 — Crude oil prices continued the slide, with Brent futures dropping below $70/bbl in early November, a decline of around $16/bbl since the peak of $86 reached in October. Here we look at the main factors that are most likely fuelling the downward trend.
1. A stronger US dollar
The impact of the US dollar is often overlooked as playing a part in influencing oil prices. The US dollar has a negative correlation with oil prices; though it is not a perfect one as it changes over time. Since September the USD/EUR exchange rate increased from 0.85 to 0.89, the highest level since mid-2017.
2. High supply
Since June major oil producers increased production to slow down the upward trend since the beginning of the year which saw Brent futures increase from low $60/bbl to around $80/bbl in June. At the same time US production has been increasing. In September the US reportedly became the largest producer of crude oil in the world.
3. Low demand
A slowdown in the Chinese economy exacerbated by the ongoing tariff dispute with the US means demand from the largest oil consumer in the world is likely weaker and placing downward pressure on oil prices.
4. Iranian sections
The US government reportedly granted waivers to several countries to buy Iranian oil to ease the positive impact on oil prices from the sanctions on the country which were set to begin in November.
For a more in-depth analysis subscribe to our market reports.