What is driving the oil price down is the fact that the market believes the market is oversupplied.
That’s what Will Rhind, founder and CEO of GraniteShares, outlined in a video interview with CNBC on Friday.
“What is really driving this price movement down is the fact that the market believes that the market’s oversupplied and this is really the main factor coming into the end of the year when global markets are down and everybody’s feeling a bit bearish about growth more broadly and that’s affecting the price,” Rhind said in the interview.
“There are a lot of people very bearish about global growth for next year and in terms of the fund manager positioning in the oil market we’ve seen that positioning come off towards the end of the year … I think that could be just a function of people looking to close up books and investment mandates for the end of the year,” he added.
Rhind told CNBC that he thinks there is more risk skewed to the upside in terms of oil in 2019.
“I think that OPEC will act and will look to take production off the market and that has historically helped the price of oil,” Rhind said in the video interview.
“I think also China will be a big factor next year. I think China will look to go in the opposite direction of the G7 countries and look to ease and put more liquidity into the market next year and that should support oil and other commodities,” he added.
Earlier this week, Wood Mackenzie’s Chairman and Chief Analyst Simon Flowers stated in his latest The Edge column that “the sharp retreat in price may turn out to be a good thing, injecting a healthy dose of reality to the industry at just the right time”.
In the column, Flowers said Brent over $80 per barrel “always seemed too good to last, defying the fundamentals”. The WoodMac analyst also confirmed in the column that WoodMac expects Brent to average $66 per barrel in 2019.
“That’s a tad down on 2018 though still a price that allows companies to generate free cash flow and continue to strengthen finances,” Flowers stated in The Edge.