Crude Oil First Major Plunged In 2020

The black commodity was rallying throughout the month of December 2019, gaining more than $10 per barrel since early December from $55.50 to $65.50 early yesterday, before plunging 5% back towards the $60 handle. 

Previously, geopolitical tensions between US-Iran had since wreaked havoc on financial markets, with investors all fleeing into safe-haven assets and oil market, worrying that oil supplies from the Middle East would be disrupted. The high demand prompted oil prices to $65.50 per barrel; a level is last seen since April 2019.    

The last upward momentum on oil price was supported by Iran’s retaliation attack on two US Iraqi airbases during the early Asian trading session on Wednesday. However, during the New York trading session, US President Donald Trump refrained from further military hostilities against Iran, easing escalating tensions between the two regions while sending oil prices sliding from its high levels.

According to President Trump, the US will retaliate with more substantial sanctions instead of a counterattack while emphasizing that Iran will not be allowed with a nuclear weapon as long as he remains his official status. On a more optimistic view, Trump suggests negotiating with Tehran, stating that both sides should work together to reach a deal on making the world safer and more peaceful.  

Further downward pressure came from the unexpected buildup in US crude inventories last week. According to the Energy Information Administration (EIA), US inventories level rose by 1.164M barrels, instead of falling align with economists’ forecast of 3.572M barrels. With the easing of geopolitical tensions and expectations of phase one trade deal signing later next week, investors reacted strongly towards the inventory data while made no hesitation to sell the crude oil. 

The WTI oil now rests near its upward trendline, while investors wait for further confirmation in the market to determine oil’s movement in the future as re-escalating tensions remain a significant risk in the market.