Oil Volatility Is Shocking Us, But What’s Shocking Oil?
Brent crude has declined over 10 percent after hitting a multi-year high in May.
While crude has increased over 11 percent in the year so far, it's seen three instances of a drawdown of over 10 percent. A drawdown is the loss incurred from a high to a low until a new high is reached.
This is on the back of softer-than-expected Chinese GDP data, U.S.-China trade war concerns and easing supply side issues, said Daniel Hynes, senior commodity strategist at ANZ.
The maximum drawdown for Brent crude this year lasted from January to February when it declined nearly 13.3 percent over 13 days before recovering the losses in the next 28 days through March. The current drawdown of over 10 percent has lasted for 43 days since May.
The second half of the year, for Brent crude, looks weaker than before for the short term, Hynes said. While $70 per barrel is the key psychological level, Hynes believes it could scale the $80 per barrel-mark by the year-end.
The factors influencing crude oil this year are no longer a simple case of OPEC/non-OPEC compliance or the inventory levels and market balancing, said Vandana Hari, founder and chief executive officer of Singapore-based energy market intelligence provider Vanda Insights. “A potential supply shock in the fourth quarter because of U.S. sanctions against Iran and the plummeting output in Venezuela, Angola and Mexico have set the stage for an over-tightened and nervous market.”
She said the U.S. administration appears to be under pressure to keep gasoline prices at the pump under check with an eye on the country’s mid-term elections in early November. “Extreme volatility is a natural byproduct of these set of circumstances, given that we have the bulls as well as the bears heaving in one direction one day, only to reverse course the next day.”