Come this time next week, 2018 will be in the rear-view mirror and we will be looking ahead to what 2019 has to offer us. Before we officially close that book, let us look back at the roller coaster of a year that the oil markets has endured. A bit of a reminder that no one can really predict what is to come.
The year started out in January with oil prices reaching multi-year highs and the decision by OPEC+ to make production cuts the previous years starting to bear fruit. Brent topped $70 per barrel and seemed to be trending even higher. We also began to see the reports showing U.S. production was far exceeding expectations, eventually adding 1.5 mb/d in 2018.
By the start of Q2, the Trump administration had begun what would be a yearlong trade war with China, imposing tariffs on more than $200 billion worth of imports from China and China retaliating with over $100 billion of tariffs on U.S. imports. Every month seemed to bring a new jab from one side or the other and always sending some sort of tremor through the markets as uncertainty and volatility were always present. We ended the year with President Trump and Xi coming to 90-day truce while they try to negotiate a long-term solution. The result of which will most likely be top of the news in early 2019.
Perhaps more directly effecting the oil market was the decision by Trump to pull out of the Iran nuclear deal back in May. Along with the aforementioned trade war, these two headlines would be the dominant narratives throughout the year. This decision and the sanctions put in place were only recently topped by a series of waivers that came about in November, allowing Iran to continue to export oil and what seemed to be a bit of a surrender on behalf of the administration to the higher oil prices.
At the start of the year OPEC+ were comfortable with the results of their previous decisions and the market seemed right where they wanted it, lower inventories and a higher price. By mid-year, however, worry seemed to set in that, they may have gone a bit too far and with steep losses expected from Iran they decided to increase output.
This resulted in what has happened in Q4 and ending out the year with a run up in prices in September and October and the crash that has unfolded over the month of November and December. We go into 2019 with oil prices in a freefall, increasing U.S. supply and OPEC+ in a seemingly worse situation than they started the year with.