Oil Market Volatility Expected to Remain High

Fasten your seat belts. Dramatic swings in the oil market may soon become the norm.
After a prolonged period of low prices and relative calm, oil watchers are predicting a surge of volatility following President Trump’s decision to reimpose sanctions on Iran. Crude has spiked 19% this year, to prices unseen since late 2014.

Taking away Iranian oil — after production cuts by Venezuela, Saudi Arabia and Russia — effectively means the margin for error in the market will become razor-thin.

West Texas Intermediate graph

In 2015 and 2016, there was so much supply that crude prices crashed. Now that buffer has been worn down so much that the market is extra-sensitive to geopolitical dangers and other shocks.

But that’s not all. Other powerful drivers are likely to jerk oil prices around, including the resurgent US dollar and a surge in production from Texas shale fields.

“Without a doubt, there are a variety of forces that could upset the balance and move us into a more volatile period,” said Ben Cook, portfolio manager at BP Capital Fund Advisors, an energy investment firm.

Analysts are already warning of an eventual return to $100 oil. That’s a remarkable swing considering that crude crashed to just $26 a barrel barely two years ago. Others are sticking by predictions that oil prices will come back to earth soon.

via CNN