The last time West Texas Intermediate Crude (WTI) oil traded below US$30 per barrel was in February 2016.
More recently, WTI peaked at US$74.34 on 10 October last year before hitting a recent low of US$45.33 on 28 December.
Crude then went on a tear, with OPEC+ successfully taking excess supply from the markets, alongside supply restrictions on Venezuela and Iran imposed by the US.
But oil’s 2019 resurgence looks to be near its end.
At time of writing, WTI is trading for US$63.64. That’s down 1.6% since Thursday, 11 April, it’s steepest fall in over a month.
Now a 1.6% fall is hardly a plummeting price.
But with OPEC struggling to contain the global glut in oil, I expect we’ll see crude fall at least 20% this year. And a return to US$30 per barrel is quite possible.
The main driver for that fall remains the epic amount of oil coming out of the US.
The US Energy Information Administration’s data revealed domestic crude stockpiles grew by 7 million barrels in the first week of April. That expansion once again caught analysts on the back foot. It came in at double consensus expectations. Bloomberg tells me this latest surge brought US crude inventories to their highest level since 2017.
Why Crude could tumble even further
Of course if the NOPEC legislation, which passed the House Judiciary Committee earlier this year, makes it into law, crude could tumble a lot further than 20%.
If you’re not familiar with NOPEC, it stands for the No Oil Producing and Exporting Cartels Act. And as Bloomberg explains:
‘NOPEC… would subject the group of oil producers to possible antitrust action by the Justice Department. Opponents warn that its passage would hurt U.S. diplomatic interests and provoke retaliation against U.S. producers. But a new white paper written on behalf of Securing America’s Future Energy, which advocates for curtailing oil dependence, argues that those fears are overblown.’
Trump’s dislike of OPEC and high energy costs is well known. If he throws his support behind NOPEC it could prove bad news for the cartel. And as Bob McNally, the president of consulting firm Rapidan Energy Group says, as quoted by Bloomberg:
‘If NOPEC legislation were passed and took effect, it could lead to greater volatility in crude prices, including steep falls that would fatally damage the U.S. shale oil boom while also hurting alternative energy investors and consumers and the broader economy.’
Crude back below US$30 per barrel? It could happen sooner and faster than you think.
While McNally is right to point out this will hurt investors in alternative energy, at least in the short to midterm, the blow to US shale would hardly be fatal. It would simply see producers head back to the sidelines and wait for crude to return to the US$50 per barrel range. That’s the price where the majority of shale producers can turn a profit.
It’s also hard to see how plummeting crude prices would harm consumers or the broader economy. I’m with Trump on this one. Bring on the cheap energy.
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