The oil market is shifting, and fast.
Top commodity traders are sounding the alarm; global oil supply is rising, demand growth is stalling, and prices may drop further in the coming months.
If you’re banking on an oil price rally, it might be time to rethink your strategy.
At the FT Commodities Global Summit in Lausanne, industry big boys, including Vitol, Trafigura, and Gunvor laid out the grim reality, that oil prices could keep plunging.
Oil prices can still plummet
OPEC+ is pumping more oil
OPEC+ has been withholding supplies for months to stabilize prices. That’s coming to an end. The group is slowly rolling back its voluntary cuts, and millions of additional barrels could hit the market in the months ahead.
Soft demand signals from China and the West
China, the world’s oil demand driver, may already peaking out its gasoline use. On the other hand, the U.S. and Europe are mired in slow economic growth, dampening demand for oil.
Prices already falling
Oil has already dropped from $80 to about $70 per barrel, and traders think it can go down even further if the trends hold.
Iran is the big wildcard
Though supply seems adequate for the time being, Iran is the largest wild card in the equation.
The United States government is walking on eggshells in its sanctions policy, aware that too much pressure on Iran would send oil prices soaring.
If things were to get hot in the Middle East, supply disruptions would reverse the entire market scenario overnight.
On the other hand, if sanctions ease, Iran could pump even more oil, adding to the supply glut.
One wrong move and the market might take a spin—either direction.
As an investor, you can expect extremely high volatility, as prices can keep declining, or geopolitical surprises can cause unexpected price spikes.
For oil firms, it would mean less profit in the near future. Efficiency and cost-cutting will be essential for them. To consumers, lower oil prices could mean less expensive fuel, but only if soft demand persists.
As worldwide production increases and demand signals soften, oil prices can be stranded in the low $70s, or even fall lower.
For investors, traders, or businesses with a stake in oil, this is a make-or-break situation.
