The oil market has been very volatile. Crude prices have gone up by 20 percent, gone down by 40 percent and again retraced by 25 percent within the duration of six months.
Analysts have warned that this could be the new norm in the oil market which will be faced with intense volatility.
Currently, the United States has overtaken Russia in oil production. Saudi Arabia has been leading the OPEC countries in cutting down on oil production to manage crude oil prices. They have aligned with Russia and other oil producers to cut down on their output to manage the supply glut.
It is an imbalance in the market along with the geopolitical risk that is bringing in the volatility in the market, says Rapidan Energy Group president Robert McNally.
Sanctions imposed on Iran and the subsequent ease of sanctions was one of the reasons for the sudden downfall in the oil market. Recently, sanctions are imposed on Venezuela which will also impact oil supply on a global level.
The alliance between Saudi Arabia and Russia has helped to curb the oil price decline. The OPEC + countries had been working very hard to curb production to stabilize the oil market.
However, the United States continues to keep production high.
Further, the U.S. production has pressurized the OPEC led countries to let up on production to bring down prices, when they were ruling at very high prices a few months back. President Trump had actively used tweets to lower crude prices. It was at this stage that prices went up by almost 20 percent after the sanctions on Iran.
Once the sanctions were partially lifted, prices crashed downwards.
The infrastructure project that is under construction to transport crude from Texas is expected to be completed in a year. Once the project is completed, the U.S. will be able to send more barrels to other countries.