Supply Glut Is Main Cause For Oil Price Decline In 2018

Supply Glut Is Main Cause For Oil Price Decline In 2018

Bussiness Top Stories

It’s been a hectic up and down ride for oil prices in 2018. But the year ends with a decline, the first in three years.

West Texas Intermediate oil prices have come down to 17-month low levels. The year 2018 has brought oil prices at less than $50 per barrel.

Oil prices were up at 76.40 per barrel on the 3rd of October but with large-scale selling pressure have fallen to $45.88 per barrel recently.

Though oil prices were quoted above $70 per barrel levels for the most part of 2018, going down below $50 per barrel is not a very good sign for the oil market.

Brent crude was trading at $53.38 per barrel, while WTI crude futures were at $45.88 per barrel. In 2018, Brent has seen a 20 percent drop in oil price, while WTI has dropped by 25 percent.

One of the most important reasons for the slump in oil prices were the actions taken by U.S. President Donald Trump.

Sanctions were imposed by President Trump on importing crude oil from Iran. Immediately, crude prices shot up. But later, sanctions were partially lifted which brought an oil supply glut at the market and oil prices went crashing down, after which the oil market has not recovered much.

China, one of the largest importers of crude oil has dropped its demand

Now, OPEC countries have agreed to cut down on production. By this agreement, OPEC countries along with Russia will cut down their oil production to 1.2 million per year. This is expected to reduce the supply glut and stabilize prices in the oil market.

As Russia and the OPEC countries produce 50 percent of oil requirements, a co-ordinated move to reduce oil supply will help oil prices to recover from its recent lows. Analysts expect prices to move back to levels above $60 per barrel within a short period.