The crude oil bear

Crude oil prices are back in bear-market territory. A bear market is typically defined as a decline of 20 percent or more from a recent peak. Investors are on edge because it’s the first bear market for crude oil since OPEC struck a deal to cut supply. With the deal in effect, oil prices were supposed to shoot up. However, the United States, which is not a part of this deal, keeps ramping up shale production. There’s now a worry that lower oil could affect stock markets and shake up petro-dependent economies.

Independent oil analyst Cornelia Meyer asserts that there are two major reasons behind this drop. First, people expected the oil stock to go down much more quickly, but that failed to happen. Second, although OPEC members have stuck to the deal and reduced production by 1.8bn barrels a day, the US has been increasing their shale production. The two OPEC countries exempted from this deal, Nigeria and Libya, have also been increasing production by 340,000 barrels a day.

With regards to the ongoing GCC crisis, Meyer anticipates that it will not majorly affect the countries. While the petro-dependent nations in the GCC might be affected, she says that the OPEC deal was a good move. However, she notes that the OPEC deal is evidently not big enough to affect oil prices in the world economy. “If you don’t get that uplift from higher oil prices and you produce less, the incentive to cheat on the OPEC deal may increase,” she said.

When asked about the effect of the prices on the appointment of Mohammad bin Salman Al Saud as the crown prince of Saudi Arabia, Meyer was once again positive. “I think the new heir to the throne actually is, in some sense, good news, because he’s of a younger generation, it’s a younger country, with his Vision 2030 which is very bold, he wants to revolutionise Saudi economy.”

Source: Al Jazeera