Crude Oil: A New World Order Emerges

Crude oil swung lower on Tuesday, extending an early-week slump that has raised alarm over the trajectory of energy markets in 2019 and beyond. Investors and consumers can expect volatility to be the new norm in a tri-polar world where the United States, Russia and Saudi Arabia are all vying for influence.

Market Update

Oil prices were down across the board Tuesday, as the U.S. and international benchmarks reversed earlier gains. U.S. West Texas Intermediate (WTI) futures tumbled 88 cents, or 1.6%, to $53.68 a barrel on the New York Mercantile Exchange. On Friday, the contract settled at $55.26 a barrel, its highest since mid-November.

Brent crude, the international futures benchmark, declined 54 cents, or 0.9%, to $61.97 a barrel. Brent reached a session high of $63.02 a barrel before turning lower.

Commodity markets are being pressured by a resurgent U.S. dollar, which is on track for its fourth consecutive daily advance. The dollar index (DXY) climbed 0.2% to 96.03, its highest in nearly two weeks.

A Tri-Polar World

The emergence of the United States as an energy superpower has had a dramatic effect on the commodity market. Not only has the Permian shale boom undermined OPEC’s grip on the market, it has given the United States a new hope of finally achieving energy independence. Case in point: in December, the U.S. briefly turned into a net exporter of crude for the first time in almost 75 years.

As the global energy balance continues to shift, Middle Eastern producers have faced difficulty engineering prices to their liking. The Organization of the Petroleum Exporting Countries and its allies agreed on a fresh round of output cuts in early December, but the impact of the reduction wasn’t felt for at least another month. Analysts are also skeptical that the latest pledge to curb output will be enough to bring crude prices back above the coveted $80 a barrel mark. Saudi Arabia’s budget depends on such a price point and a failure to reach it could be devastating for the kingdom, which recently announced a big spending boost to spur its economy.

Related: Oil Prices Plunge Below $48 a Barrel on Oversupply Concerns; Saudi Arabia Announces Budget

Against this backdrop, the volatility of recent times could become the norm for crude prices. In just six months, oil surged by 20%, plunged by 40% and then corrected higher by 25%.

Global producers will continue to face pressure from cost-cutting shale producers in Texas and New Mexico. American oil companies have engineered greater efficiency gains since the 2014 price collapse, which makes them better able to withstand deep discounts and prolonged bear markets.

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Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi