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Oil Price Swings & Trump's Sanctions

Source: 2/6/2019, Location: Europe

During just six months crude oil prices ripped higher by about 20 percent, plunged more than 40 percent and snapped back 25 percent, an intense volatility that analysts warn could be the new normal in the oil market.

December was a real nightmare for the global market, where the swings were $50 at a low, $86 at a high and $68 for the average of Brent crude oil. Brent was trading at about $62.44 per barrel in the futures market Tuesday, while Western Texas Intermediate was $54.25 per barrel.

Booming U.S. oil production and the rise of the United States to become the world's largest producer has certainly factored in the shift away from OPEC as the main entity controlling supply and prices. In 2016, Saudi Arabia led other OPEC members to align with Russia and other producers to use their combined clout to manage global energy prices.

Another factor new to the market is the active participation of President Donald Trump, who through tweets and comments has pressured both Saudi Arabia and OPEC to let up on production when prices are high. Trump has also moved to sanction two members of OPEC — Iran and Venezuela — impacting global oil supply.

"In this boom-bust era, as in prior ones, you can have a year or two of stability, but in general when you don't have an effective swing producer and you have big imbalances and geopolitical risk," there's volatility, said Robert McNally, president of Rapidan Energy Group.

The new dominance of the United States in the oil market, combined with the Saudi-Russia alliance, means new tensions, and the industry will have to adjust. Oil supply also only looks set to increase with more U.S. output, as well as growing production from places like Brazil. The U.S. could also be in a position to send many more barrels out into the world, after infrastructure projects to transport crude from the Permian basin in Texas are completed later in the year.

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