IEEJ：November 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (454)November 15, 2019

Crude Oil Prices Rising Moderately since October
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Crude oil prices have followed a moderate uptrend while seesawing in the first half of thisyear’s fourth quarter. The benchmark West Texas Intermediate crude futures price crept up from$52.45 per barrel on October 3 to more than $55/bbl in late October and has remained around$56-57/bbl. The Brent futures price, another benchmark, rose from $57/bbl in early October to morethan $60 in late October before staying around $61-62/bbl. These prices, though keeping up a
gradual uptrend, have thus remained relatively stable without any major fluctuations.
The relative stability came after steep fluctuations in September. Particularly, crude oil
prices shot up by more than $10/bbl in a manner to attract global attention soon after attacks on
Saudi Arabia’s core oil facilities in Abqaiq and Khurais forced the oil kingdom to cut oil production
by 5.7 million barrels per day. Although growing tensions in the Middle East and the large-scale oil
supply disruption were feared to push up crude oil prices steeply, Saudi Arabia put an end to thesupply disruption promptly through full restoration efforts and recovered normal supply in early
October, allowing the oil market to regain stability. As concern about any long supply disruption wascleared up, crude oil prices at the start of the fourth quarter on October slipped below levels seen
before the attack.
Over one and a half months after the market restored stability by overcoming concern
about geopolitical risks, crude oil prices have moderately increased. The largest factor behind themoderate uptrend may be that market participants expect global economy risks to recede slightly. AsI have reiterated, two major factors have exerted conflicting pressures on the oil market in the past
one to two years. Geopolitical risks have imposed an upward pressure against a downward pressure
exerted by global economy risks. Amid a tug of war between the two factors, oil prices have risen on
the former’s dominance, declined on the latter’s and remained stable during an antagonism between
the two factors. This basic trend remains unchanged. In a new development, however, global
economy risks that work to push down crude oil prices have slightly weakened, leading these prices
to moderately rise.
As a matter of course, global economy risks have not been cleared up. As noted later, thefuture course of the U.S.-China trade war is still uncertain, though with moves seen toward someagreement. Uncertainties still exist over the United Kingdom’s exit from the European Union,
known as Brexit. No optimism can be warranted over the two issues. In its World Economic Outlook
released in October, the International Monetary Fund revised its 2019 global economic growth
projection by 0.2 percentage points downward from 3.0% in the previous outlook (released in July).
From the October 2018 outlook, the projection has been lowered by 0.7 points to the lowest level
since the 2008 global financial crisis. In this sense, concern about the future of the world economy is1

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still lingering among market participants.
Regarding the U.S.-China trade war, the largest factor among global economic risks,
however, the United States refrained from implementing a plan to impose additional tariffs on
Chinese imports on October 15 as bilateral ministerial talks on October 10-11 resulted in China’s
offer to substantially expand farm imports from the United States and made progress in negotiations
over China’s alleged theft of intellectual property, financial services and foreign exchange policy.
The development represented a “Phase 1 deal” on a partial framework toward a trade war ceasefire.
In response, U.S. President Donald Trump said that the trade war was approaching its end. Thesedevelopments led market participants to reverse their concern about the intensification of the trade
war and expect the resolution of the war.
Reflecting such market sentiment change, stock prices as a harbinger of future economic
trends turned upward. The Dow Jones industrial average on the New York Stock Exchange ralliedfrom 26,079 on October 2 to more than 27,000 on October 15 in response to the “Phase 1 deal” andhopes of an easing trade war and crept up while seesawing. On November 4, it rose to 27,462 hittinga record high for the first time since last July. The stock average continued to rewrite its record high,reaching 27,784 on November 13. As a matter of course, the robust U.S. economy, brisk corporate
earnings and hopes of accommodative monetary policy have also contributed to the stock market
upsurge. However, the development regarding the U.S.-China trade war as the greatest factor behindthe economic slowdown risk might have been the largest contributor to the stock market upsurge.
Stock price hikes might have pushed up crude oil prices by easing concern about the global
economic slowdown risk. At the same time, the hikes might have induced buying of crude oil futuresby helping to expand money inflow into risk assets.
The Brexit issue, another factor behind global economy risks, has also entered a new stagein October. British Prime Minister Boris Johnson, who had vowed to exit from the European Union
on October 31 even without agreement with the EU, agreed with the union on the modification ofconditions for the exit on October 17. The last-minute agreement tentatively avoided the chaos of aBrexit without agreement and led the world to watch the results of a general election on December
12 for which a measure was passed by the British Parliament. In consideration of the planned British
general election, the EU has extended the Brexit deadline until the end of January 2020. In this sense,
any chaos regarding Brexit has been avoided for the immediate future, despite uncertainties lingering
about the election results, contributing to easing global economy risks.
At present, however, we must pay attention to the fact that global economic risks, thoughhaving been eased for the immediate future, still exist. Uncertainties are left not only about theabovementioned Brexit but also about the U.S.-China trade war. This is the reason the market was
shaken by President Trump’s remark denying any agreement with China in response to China’sannouncement that the two countries agreed to lower tariffs in phases. Depending on U.S.-China
bargaining and developments in a run-up to the final agreement, as well as the fate of Brexit, market
players’ expectations and speculations regarding the future course of the world economy couldchange. Global economy risks remain the most important factor in anticipating future crude oil pricechanges.
Undoubtedly, future developments regarding the Middle East and geopolitical risks,another major factor, would also exert influence on the crude oil price trend. Naturally, we must also

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watch the overall oil supply-demand balance and relevant factors such as future growth in U.S. shaleoil production, supply problems in other major oil producing countries like Venezuela, Libya andNigeria, and the future oil production policy of the Organization of the Petroleum ExportingCountries and some non-OPEC oil producing countries. While crude oil prices follow a moderate
uptrend in the absence of major developments for the immediate future, we must carefully watch
market conditions without any prejudgment.

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