From $80 to below $70: Oil's mighty fall!

The U-turn

Oil is back in headlines. But entirely, for different reasons.

Cut to early October, when the commodity ruled at a four-year high. And watch now, it's there for all to see. Oil prices have fallen for the 12th straight session in its longest losing run on record. 

What a difference a month can make!

So, the oil prices, which slid into a bear market last week, are tapering off from their heady days. Let's see what all is fuelling this downtrend. And, does oil stand a chance to make a comeback?

Direct hit

Futures in New York fell as much as 1.8 per cent, extending a drop of over 11 per cent since October 26. The immediate trigger is seen to have come from US President Donald Trump himself. The US has come down real hard on top OPEC producer Saudi Arabia’s plan to slash output. Prices “should be much lower based on supply”, Trump tweeted. That's enough to send a shockwave through the oil market.

The spark that lit the fire

Saudi Energy Minister Khalid Al-Falih set the cat among the pigeons when he said producers need to cut about 1 million barrels a day from October production levels. Though the top oil producer explained the likely reduction in terms of a seasonal drop in demand, the real reason is hard to miss. The world’s largest crude exporter is getting increasingly worried about the decline in prices.

The big questionmark

“There is not a lot of time left before the OPEC meeting in December, and the group may not be able to build consensus by then. It remains to be seen whether OPEC will agree” on cuts, a top analyst said.

Where is oil headed?

There is a view that going ahead, oil prices are expected to stay around $70 for the next few months. "We think there are going to struggle to keep it around $70 in the very near term, especially when the first part of the 2019 could see it turn a little weaker. But it all boils down to the sanctions and how much the US wants to push Iran," said Jeff Brown, President, FGE Group, which deals in energy.

Talk of comfort zone

Anything above $80 a barrel for oil. Yes, that is what the Saudis and other producers in the Organization of the Petroleum Exporting Countries (OPEC) and its allies, would prefer. That's the level they believe is sustainable.

Problem of plenty

Fears of oversupply grew after the US granted waiver to eight jurisdictions, including India and China, from sanctions to continue buying Iranian crude. America to pushed ahead with its shale production and oil inventories climbed.

Growth bump ahead?

The trade war between Washington and Beijing is not helping matters either, which is stoking concerns that the world economy is heading to a slowdown and in turn dragging down oil prices.

Look, who is smiling

The dollar is sitting pretty, which has climbed to an 18-month high, as the US Fed looks set to hike rate as early as next month. A slump in US stock markets is adding to bad news for crude.

More headroom for India

But India can breathe easy as fuel forms the biggest component of its import bill. Any drop in crude prices will have a positive impact on its deficit maths as well as inflation. And that could provide some relief to the Centre as general elections in 2019 near.

Sunday dampener?

The much-publicised meeting between OPEC and allied producers including Russia on Sunday saw no formal change in output policy. But the producers talked of “new strategies”. Meanwhile, Saudi Arabia unveiled a plan over the weekend to cut down its shipments by about 500,000 barrels a day next month,  Venezuela and Oman indicated they may go along with the kingdom.