Crude Oil: Where iI Mr Fickle Headed In 2020?
The Hindu Business Line|January 20, 2020
Without supply shocks from an all-out war, it could stay between $60 and $70 a barrel
Anand Kalyanaraman
Crude Oil: Where iI Mr Fickle Headed In 2020?

Just how volatile crude oil can be was on full display over the past fortnight. The assassination of top Iranian military general Qassem Soleimani by the US government on January 3 sent tensions between the two countries soaring and raised the spectre of an all-out war.

An oil supply shock could possibly have ensued — had Iranian counter-attacks killed US personnel, or if Iran had attacked US allies such as Saudi Arabia, the United Arab Emirates or Israel, or if it had choked the Strait of Hormuz, a critical oil trade route. Oil prices shot up on such worries, with benchmark Brent up $3 in a day to nearly $69 a barrel.

Thankfully, Iran stopped, at least for now, after missile attacks on US military bases in Iraq that reportedly did not result in loss of lives.

The US did not react, tensions eased somewhat and Brent retreated to $64-65 a barrel. But will oil stay that way in 2020?

It’s a mug’s game trying to predict the fuel’s movement. That said, an idea of the factors that have moved the see-saw in the past could give some pointers.

Even before the recent spike in US-Iran tensions, oil had been yoyoing. In October 2018, Brent shot up to $85 a barrel from $45 a barrel in June 2017. By end-December 2018, it had fallen below $50. Oil then shot up again, crossing the $70-mark by May 2019, only to dip below $60 by August. Then, in mid-September 2019, there was a spike to over $70. But Brent soon fell below $60, only to rise to $67 levels by end-December 2019. The New Year, heralded by escalation in tensions in West Asia, saw prices move up close to $70, and then let off some steam to settle around $65 now.

Key drivers

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