May Newsletter 2018: Oil Market Review

As you may be aware the oil prices have surged in the past few weeks. We wish to share with you some insights on the oil price and how it may affect your electricity bill.

Oil prices were mainly supported by the possibility of Trump pulling the US out of the JCPOA and re-instating sanctions on Iran in April. This became reality on the 8th of May and provided further upward pressure on oil prices as there is a distinct possibility that the new sanctions will hinder OPEC’s 2nd largest oil producer’s ability to market their crude, hence restricting global supply. The on-going conflict between Iran and Israel has been keeping the market on its toes and risk premium within prices as well. The exact details of the sanctions are uncertain, and these will shed light on how much, if any, of the 3.8 million barrels a day of Iranian production will be affected. The re-election of President Maduro in Venezuela does not help the country’s ailing economy nor it’s oil production which has fallen 400 thousand barrels a day since 2017 and seems like it will restrict global supply further.

As we enter the northern hemisphere summer, and hence the peak driving season within the US, US gasoline demand might shed some light on if demand erosion is happening as oil prices rally to 3-year highs. While drivers mourn the rising petrol prices, the US Shale machine continues to power on as higher prices invigorates the US shale industry. The EIA is predicting that the US will become the world’s largest crude producer by the end of the year in addition to being the biggest consumer. Whether this will throw a wrench in OPEC+’s plan remains to be seen. We’ll learn more on that front over the St. Petersburg International Economic Forum starting this Thursday.

Do keep an eye out on the trade tariffs between US and China as escalations in this area will likely derail the global economy and hence oil demand. Negotiations over the weekend suggests that a truce has been called on this regard but you can never be quite sure with Trump in the driver’s seat…

One thing is for sure though, wholesale electricity prices has followed oil up and so will tariff.

Author: Ross Han, Trading Analyst, iSwitch Energy Team