Chief economist update: Oil slick

The last time we talked about oil, prices were surging and reaching for the skies.

Crude oil price started to take off roundabout April this year after OPEC announced that its production cuts - starting on the 1 January 2017 and supposed to last for six months to June 2017, then extended by nine months to March 2018 - would remain until the end of 2018 and, of course, the synchronised global growth momentum that was still in play in the earlier months of this year.

The price of West Texas Intermediate (WTI) has jumped US$66.81 per barrel while that of Brent oil gained US$72.05 per barrel - above the psychological level of US$50 a barrel and at their highest since December 2014.

The black gold's price received another boost in the middle of this year after US President Trump re-imposed sanctions on Iran as well as threatening that the US would also sanction countries importing oil from Iran. This sent prices even higher - Brent oil rose to over US$80/barrel and WTI oil topped the US$70/barrel mark.

Prices continued to rise to as high as US$86.07 (Brent) and US$76.40 (WTI) in early October following Saudi Arabia and Russia's announcement of no immediate increase in oil production following the OPEC and non-OPEC nations meeting in Algiers on September 23.

And then the fall, proving once more that the cure for rising oil prices is ... rising oil prices. This is particularly true for emerging nations which, along with currency depreciation, experienced rising inflation in their respective domestic economies. This has prompted many emerging market central banks to raise interest rates, damping business activity and hence, demand for crude.

In a phrase, the synchronised economic upswing that prevailed until the first quarter of this year is no more - while the US economy continues to go gangbusters, China is slowing, the Eurozone is losing momentum and an increasing number of emerging economies are either in or heading for contraction.

Ergo, lesser demand for oil.

As per supply, Trump's recent decision exempting eight countries - China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea - from buying Iranian oil means that Iran's oil production would continue to add to the global supply of crude.

Put two and two together - reduced demand and steady supply - and it's easier to explain why oil prices are now back to early 2018 levels.

Brent oil's back down to US$71.60/barrel and WTI oil's now at US$61.66/barrel.

Read more: BrentIranWTIOPECChinaAlgiersearly OctoberErgoEurozoneGreeceIndiaItalyJapanRussiaSaudi ArabiaSouth KoreaTaiwanTurkeyUS President TrumpWest Texas Intermediate
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