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Oil markets’ new dynamics and unknowns: What to expect and how to prepare in 2018?

Oil prices rallied in the first week of 2018, supported by increased geopolitical risk and severely cold weather in certain parts of the world, but the ‘perfect storm’ that pushed oil prices higher also raises the risk of a correction and of heightened herd mentality in trade. Protests in Iran, possible new US sanctions against Tehran, Saudi domestic dynamics, North Korea’s missiles and Venezuela’s economic collapse could be the main geopolitical risks that could drive oil prices up this year.

In this age of disruption, there are too many unknowns to predict what will happen next week, let alone 52 of them into the future. So instead of predicting where the oil markets will be by the end of 2018, it would be more plausible to outline some of the key developments and some unknowns in the energy markets for the year 2018:

Overall world oil production: World oil production is going up. The oil industry has changed in fundamental ways. First, OPEC (Organization of Petroleum Exporting Countries) reduced output to put a floor under prices. On November 30 2016, OPEC members agreed to cut production by 1.2 mbd by January 2017. Prices began rising right after the OPEC announcement.

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Mehmet OGUTCHU
Dr. Ret. Ambassador

Can OGUTCHU
Researcher

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