As Oil Continues Falling, Should Analysts Reconsider 2019 Economic Forecasts?
Ellen Wald | Oct 25, 2018 05:30
Just a few weeks ago, the price of Brent crude broke the $85 mark and markets were talking about the possibility of $100 a barrel oil. Now, traders and analysts appear to have changed their tune.
Oil prices fell early in the week on news of an anticipated build in crude oil stocks in the US and Tuesday , WTI fell 4% and Brent lost 4.3%. This seems like a necessary correction after oil prices reached highs not seen in four years earlier this month.
The market is also toning down its expectations for the Iranian oil sanctions that will take effect November 4. Tracking information from various sources, including position as “produce as much as you can.” Russia and Libya also announced production increases this week.
Uncertainty surrounding the Iran sanctions, particularly from China, will continue to impact the market. For months, it has been assumed that China will continue to import Iranian oil at a steady rate, even after sanctions take effect. China is currently the largest importer of Iranian oil. However, recent news has complicated that assumption. Reuters reported that both Sinopec and CNPC are hesitating to place orders for Iranian oil for November pending news of possible sanctions waivers ahead of November 4.
In addition, Bank of Kunlun significant because it was the primary method for China to evade US sanctions on purchases of Iranian oil during the previous round of sanctions. The US did sanction Bank of Kunlun for its role in facilitating purchases of Iranian oil but because the bank had no exposure to the US financial system, the sanctions had no effect.
If oil prices continue to trend downwards instead of upwards, it is possible that analysts will reconsider their economic forecasts for 2019. Cheaper oil can often spur economic growth. If OPEC continues its current production policy through mid-2019 and if Saudi Arabia, Russia and the United States can deliver on promises of higher oil production, then the global economic outlook could pick up.
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