Energy Ink’s Upstream e-Newsletter warned of a rough ride for oil prices just four weeks ago. We had no idea just how rough it would be. Oil prices are obviously driven by response to domestic reports and global events. The more resounding those events, the more volatile the market becomes, and geo-political events have been extremely volatile in recent weeks.
After a month over month climb in oil prices since January 2019, oil prices have swung wildly throughout late May and June moving as much as 10% in both directions over 5 day periods. Prior to the week of May 20th, prices over any given five day period saw no more than a 3% plus or minus change.
During the week of May 20th, prices dropped 6.59% after an “unpredicted supply build” in petroleum reserves was reported. Late the following week, President Trump’s threat to punish Mexico with tariffs over immigration issues saw WTI prices tank 9.23% in just two days. It was the worst May performance of oil prices in seven years, according to Bloomberg.
Bleeding into the next week continued when a government report revealed that fuel inventories were on the rise. The total posted loss of WTI over that five day period was 12.64%, dropping from $56.59 to $51.68.
After another reported increase in oil inventories on June 12th, WTI shed another 4% as it flirted with dipping below $50 a barrel for the first time in five months. But global events intervened
as the attacks on tankers in the Gulf of Oman the following day rallied markets on fears that threats to shipping in that Gulf could lead to supply delivery issues.
The next unexpected boost to prices came last week when the U.S. announced it would be resume trade talks with China. Two days later, the Iranians shot down a U.S. military drone over international waters in the Gulf sending WTI soaring by 5.38%. Part of that boost could also be credited to the Federal Reserve’s announcement it would not be raising interest rates.
All told, when adding up the drops and surges over the last five weeks, WTI crude prices saw a total drop of 28.74% and a total increase of 20.53% as prices have seen a combined drop of 9%, or a loss of $5.67 ($63.10 on June 20th, $57.43 last Friday, June 21st.) Natural Gas prices, by the way, which are less dependent on global events, dropped 8% last week as storage grew and summer weather shot down demand. All in all, the energy markets are giving traders heartburn.
What’s next? Obviously, it’s all speculation. But it can be assumed that crude prices will likely see the same volatility moving into the summer. Iran will almost certainly continue to try the patience of the global community, especially in the face of the revelation that the U.S. called off a tactical strike in response to the drone downing.