After hitting a 4-year high of almost $87 a barrel, the Asian benchmark Brent oil fell sharply to $49.93 a barrel by December and ended down by more than 21 percent in 2018.
Performance of the global benchmark US WTI was also not different, posting losses of more than 40 percent since hitting its multi-year high of $76.9 a barrel in October first week.
Mirroring the trend in the overseas market, Indian futures prices too shed more than 22 percent since the start of 2018.
Worries of supply crunch on the prospect of tough sanctions on Iran and healthy demand from top oil consumers kept oil prices at multi-year highs earlier. However, the outlook of oil has turned negative amid rising production and concerns over global economic growth.
The initially expected supply drop by Iran owing to sanctions has not materialised during the year as the US unexpectedly gave broad exemptions to major Asian oil consumers.
Availability of Iranian oil and higher output from OPEC, Russian and US led to a supply glut in the market which adversely hit global oil prices. Worries over global demand amid trade dispute between the US and China weighed on the sentiments as well.
Last year, oil market witnessed increased pumping by key players like Saudi Arabia, Russia and the US. The combined production from these three countries is sufficient to meet more than a third of the global consumption.
The slow pace of economic growth in Asia’s largest economy, China and worries over demand from other emerging countries are also influencing prices. China has reported slowing growth in manufacturing and drop in car sales recently, indicating the trade conflict with the US has started straining their economy.
On the domestic front, Indian futures prices rallied to a four year high of Rs 5,669 a barrel during October due to higher international prices and a weak Indian currency. A weak rupee resulted in the rising cost of imports to the country, which took local oil prices to four-year highs by October.
Meanwhile, prices sharply declined later tracking the overseas trend.
Looking ahead, continuing deceleration of global economic activity would curtail energy demand further. The increasing sign of slowdown across Asia’s biggest economies may worsen the oil market situation. Shrinking demand and elevating US shale production points towards an emerging surplus, which is likely to pressure prices further.
Meanwhile, OPEC and other top oil producers will perhaps withhold crude output in 2019 to tighten supply and prop up prices. On the price front, the US WTI futures are likely to trade inside $72-42 a barrel in the immediate run. If there is a direct drop below $42, one can expect further sharp liquidation pressure or else there may be a turnaround in prices.
Natural Gas price was extremely volatile during last year. After consolidating for several months, the key NYMEX natural gas futures suddenly jumped to near $5 mmbtu by November on the forecast of higher US demand during the winter season. However, prices sharply declined to $2.94 mmbtu later due to reports of higher inventory.
Looking ahead, prices are less likely to gain further and may trade inside a range of $2.2-5 mmbtu. Indian futures prices are most likely to get stuck inside Rs 310-180 with a mild negative bias.
The author is Head – Commodity Research at Geojit Financial ServicesÂ
