In 2018, the price of crude oil
had an interesting year. After rising steadily to the highest levels in three
years, the price started crumbling in early October. This happened after the
United States offered a number of countries waivers to continue doing business
with Iran. Initially, investors expected the withdrawal of Iran to lead to less
supplies. Instead, OPEC members and Russia continued to boost production. The United
States too continued increasing its supplies leading to a glut in production.
At the same time, global growth
was forecasted to start slowing down. An increase in supply of any commodity at
a time of weaker demand leads to weaker prices. This is because the buyers have
multiple choices of where to buy their commodities from.
There are signs that the global
growth is softening. In fact, a report by IMF in the final quarter of the year
predicted that the global growth was softening. Central banks too have warned
that the global growth will start easing this year. Earlier today, the
manufacturing PMI data from China showed that the manufacturing industry was
softening. The PMI contracted to below 50 for the first time in more than 15
This led the price of crude oil
to continue moving lower by more than one percent. The yearly chart below shows
the declines in the price of Brent, the global crude oil benchmark. This price
is below all the major moving averages with the RSI moving closer to 40. Despite
of all these, there is a likelihood that the price of crude oil is nearing a
bottom. This could see it rise in the first quarter.