King: Oil prices jumped all over in FY19
Ed King - King Economics Group
Introduction: Now that my work with the new administration is done, Iím back to providing you with some light reading. Hereís your monthly breakdown of the things that Iíve been watching in Alaskaís economy. Although, seeing as today, July 1, is the first day of the new fiscal year, this edition provides insight into how fiscal year 2019 wrapped up.
Excerpt on oil prices in FY19Alaska North Slope oil traded at an average of $69.45 in FY19, with a daily low of $54.19 and a high of $85.36 during the year.
FY19 started strong, mostly due to the expected impact of sanctions on Iranian supply. OPEC increased production to compensate for that lost production, but then the President issued waivers for several countries to continue their purchase of Iranian crude oil.
The combination of extra OPEC oil, some supply increases in the shale patch, and the lack of expected Iranian disruption created an oversupplied market in October. Prices responded with one of the biggest and fastest corrections in history.
By January, oil prices began to recover as OPEC cut back on production and outages in Venezuela balanced the market.
Oil prices continued to rise through April as the sanction waivers for Iranian oil expired and the escalation of the Libyan civil war began to concern traders.
By May, a new fear took control of the oil traders - a slowing global economy. With U.S. trade wars unresolved, and new fronts emerging, traders became concerned about the ability to hit demand growth targets.
As economic data began to show the negative consequences of the tariff battle, fears were fueled and traders abandoned their long positions.
The combination of a productive meeting between the U.S. and China over the weekend, and the extension of OPEC cuts being discussed today, are allowing traders to refocus their attention on Iran.
Alaska North Slope crude is currently trading as just under $70 a barrel again.
These competing tensions appear likely to continue through next year and are creating anxiety with commodity traders.
A war in the Middle East could send prices into the triple digits.
Faltering demand and escalating trade wars could drive prices back toward $50 (or lower if China begins importing Iranian crude).
In other words, donít trust any point estimate price forecasts right now. Nobody knows what will happen next.
- ED KING, excerpt from the July1 edition of Alaska by the Numbers, a weekly newsletter published by King Economics Group