Chart of the Week: Recent Drop in Oil Prices

Chart Recent Drop in Oil Prices

The price of oil has dropped sharply over the last few months, slumping 30% since its peak in early October 2018. A few factors are behind the move. The first is a continued surge in production from U.S. shale producers. Domestic oil production is up over 20% from a year ago. With OPEC pressing forward without supply cuts, the combination of booming U.S. oil production and stable OPEC production has led to a swelling of global oil supply. At the same time that oil supply has risen, concerns about global oil demand have started to surface. Just last week OPEC came out and cut their forecast for 2019 global oil demand for a fourth straight month. This confluence of factors has led the market to quickly and dramatically reevaluate supply/demand expectations as we move into 2019. While a further decrease in oil demand could mean that a slowdown in global growth on the horizon, thus far, the pullback in oil prices seems to be normal, albeit volatile, market behavior.