Like a week ago, oil prices have dropped by 7% once again. Now traders are afraid of another major downtrend seen in 2014, when crude oil depreciated by 33% over November and December. International experts say this scenario is extremely probable.
According to NordFX experts, Brent oil futures depreciated by $3,77 (-6,6%) and closed at $62,53/b. At the same time, WTI oil futures depreciated by $4,26 (-6,4%) and closed at $53,43/b. Then brent oil dropped down to $61,71/b, which is the lowest price level since December 2017. All in all, Brent and WTI oils have already depreciated by 28% and 30% respectively since October.
Investors Reduce Exposure To Risky Assets
Now it seems like the current downtrend is caused by the fact that international investors have been reducing their exposure to risky assets, with crude oil clearly being one of those assets. Experts say investors are trying to get rid of stocks in the first place. This is basically why U.S. stock indexes have dropped 1.7-2.2%. In particular, Dow Jones and S&P are currently 1% below the level seen in early 2018. With that being said, the last 2 months has been a challenging time for the U.S. stock market.
Investors are now taking into account a possible interest rate hike coupled with poorer corporate earnings figures. This is one of the consequences of the current trade war between the United States and China. America's biggest tech companies (the so-called FAANG, which stands for Facebook, Apple, Amazon, Netflix, Google) have already seen their stocks drop in value by almost 1 trillion dollars total.
So, financial markets seem to be struggling all over the world. For now we know that in October alone, the global stock market lost a stunning 8 trillion dollars. The reason is fears. International players are afraid of another global economic slowdown.
Some experts believe that a 8-9% drop in the stock market indicates problems in the global economy. At the same time, the players are adjusting their short-term predictions to lower them.
On Tuesday, oil prices reacted to Donald Trump's statement related to the relations between the United States and Saudi Arabia. He gave everyone to understand that Saudi Arabia will remain one of America's partners. This sent oil prices lower. The thing is that previously, international market players used to expect tensions in the bilateral relations between the two states. Those risks pushed the prices higher. Now that the tensions aren't expected anymore, the prices returned back.
Still, investors are worried about the future. More and more investors start expressing their concerns about the likelihood of another oil market crash like the one that happened in 2014.
As you probably know, 4 years ago the entire market used to get ready for the OPEC's decision to shrink their oil production. Such a step would support oil prices. Back then, after the disappointing OPEC summit, the price dropped by 10%. Over the next 4 week, the market lost 25%. In 2015, the prices dove below $40/b.
