U.S. Outlook: What’s behind the oil price plunge?

Scott Anderson
Posted by Scott Anderson
Chief Economist

Crude oil prices had been generally rising in 2018 before peaking at $76.24 on October 3.

Large, very clean refinery at dawn. No human activity is visible.Since then, there has been a sudden shift in underlying market dynamics. What’s behind the sharp change in trend?

For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on Nov. 30.

Key observations:
  • Overall, we believe the increase in oil supply rather than a decrease in oil demand is the primary driver of lower oil prices today.
  • The sudden, sharp, and sustained decline in oil prices immediately reduced the inflation expectations of bond investors.
  • Investors are now expecting lower consumer inflation over the next five years compared to early October, largely as a result of the dramatic plunge in oil and other commodities prices.
  • Bank of the West Economics expects West Texas Intermediate Crude to average $62.50 per barrel in the fourth quarter, and average just $51.50 per barrel in 2019.

Read my full report.

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