The oil price has now broken down through the all important $50 mark, which is a physiological blow to any chance of a rally, and according to some analysts the pain is not over yet.
Since October, the price has fallen more than 30 percent after US president pressured Saudi Arabia to ramp up production in anticipation of the shortfall created by removing Iranian oil from the market because of Sanctions,’
Even though the US enforced the sanctions against Iran, they granted many waivers to countries such as China who were free to keep buying Iranian oil which caused an oversupply in the market and oil fell as a result.
The situation caught some off guard who believed the oil price was stabilizing and even about to rally further.
“For a brief period, the energy market in 2018 bore all the hallmarks of having stabilized with some sense of normalcy returning but all that changed in October,” noted analysts from UBS.
At $50 a barrel, the oil price may find some support in the short term but inevitably, it will push lower according to Tamas Varga, senior analyst at PVM Oil Associates
“Some kind of short-covering can happen any time from now until the end of the year but no long-term joy is on the horizon for oil bulls,” he said
“There are lots of variables regarding next year’s oil balance but based on available data, information and sentiment, it is fair to say that any price rally will be met by fierce resistance from the sellers’ side. The only way is down,” he added.