Investors who were banking on oil prices to miraculously appreciate following Saudi Arabia’s latest pledge to cutting production were left thoroughly empty-handed after bulls failed to make a lasting appearance.

Brent Crude’s steep descent into a bear market during the early parts of November prompted Saudi Arabia to announce a 500,000 barrel per day cut in December supplies in an effort to stem downside losses. Although oil prices initially rebounded following the announcement, gains were later surrendered thanks to ongoing supply and demand side concerns.

The unsavoury combination of rising global supply and worrying signs of slowing demand growth have played important roles behind oil’s painful depreciation in recent weeks. While geopolitical risk factors in the form of Iran sanctions initially injected oil bulls with inspiration, this was replaced with discouragement after Washington granted waivers to eight importers of Iranian Crude.

The fact of the matter remains that global inventories are back on the rise while global supply is outstripping demand. Major emerging economies whose currencies suffered to an appreciating dollar are raising concerns over the possibility of weakening energy demand, while in the United States shale production is as robust as ever.

Ongoing global trade tensions remain an ever-present threat to global economic growth, with the risk of a full-blown trade war between the United States and China negatively impacting demand for crude oil. The real question on the mind of many investors is whether output cuts by Saudi Arabia and possibly other OPEC members will be enough to support oil prices.

With Russia arguing that excess supplies will not last, it seems Saudi Arabia may be rising solo in cutting production in the near-term.

The outlook for oil prices remains tilted to the downside in the short to medium term as supply and demand side concerns overshadow geopolitical risk factors. Oil markets are on course for oversupply with US oil production surpassing that of both Russia and Saudi Arabia, while the outlook for oil demand continues to deteriorate amid global growth fears.

With Brent Crude sinking back below $70 and WTI Crude following behind under $60, bears are clearly back in the building. Technical traders will be keeping a very close eye to see whether Brent and WTI are able to secure solid monthly closes below these support levels. If such becomes reality, oil markets are at threat of concluding 2018 on a negative note.

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 89% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.                                                                       

FXTM Brand: ForexTime Limited is regulated by the CySEC (licence no. 185/12) and licensed by the SA FSCA with FSP number 46614. Forextime UK Limited is authorised and regulated by the FCA (licence no. 777911). FT Global Limited is regulated by IFSC (license no. IFSC/60/345/TS and IFSC/60/345/APM).

Any opinions expressed here are the author’s own.

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© Opinion 2018