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President Trump's Christmas wish for oil markets came a week early as prices tumbled by almost 8% on Tuesday, December 18. WTI, the U.S. benchmark closed at around $46 dollars per barrel, a price not seen since September 2017. It has continued to head down in futures trading. This reflects a decline of 40% since this past October, when prices topped $76 per barrel.
This is good news for those traveling by car for the holidays or for shoppers hoping for a little extra cash in their wallets, but it could mean troubling times ahead for the global economy and especially oil producers.
This drop was caused by a number of factors:
- Data from the API showed a large increase (1.8 million barrels) in stored oil this past week in the U.S.
- End of the year market sell-offs
- Indications that oil demand growth will slow in 2019, especially in emerging markets
- A smaller than desired cut in oil production from OPEC and Russia - only 1.2 million barrels per day, starting in January
- News of record oil production from U.S. fracking companies
- Forecasts of strong production growth for U.S. shale oil companies for 2019
- Fears of a global recession in 2019
Low oil prices are good for American consumers, and especially good for those who have gone into debt to pay for their Christmas holiday celebrations . According to to the National Retail Federation, U.S. consumers will spend 4.1% more this year during the winter holiday season. If lower oil prices hold through January, the savings at the pump could help offset the spending spree this December. However, we could still be in for a roller coaster in oil prices in 2019 as the U.S. may use this price cushion as a reason to eliminate the exemptions given to certain countries to continue importing Iranian oil. Those exemptions come up for review in April, and could eliminate as much as 1 million barrels per day of oil from the market, pushing prices up.
On the other hand, a global economic recession could prevent oil prices from picking up. If prices stay low for too long, U.S. oil producers will feel the pain and troubling times could be in store for Texas, New Mexico, North Dakota, Oklahoma and other shale oil producing regions.
