The world is entering 2019 navigating a host of financial, economic and political fault lines, the deepening of any of which could severely impact oil markets. The turbulent environment seen in 2018, wherein external shocks beyond oil market fundamentals spurred wild swings in oil prices, appears to be growing even more tumultuous in 2019.

Much of the uncertainty and proliferation of risk is emanating from the White House and its efforts to remake the global trading system have cast a shadow over economic growth; authoritarians act more aggressively in pursuit of their interests, creating outsized risks of geopolitical upheaval. In the Middle East, US forces are being removed from Syria and Afghanistan, and has moved to assemble a coalition to aggressively confront Iran with no clear end game as tensions escalate.

Of course, benign scenarios exist for 2019, however the transformation of the global environment amplifies risks. Even a modest economic downturn resulting from cyclical factors and/or quantitative tightening could prove difficult to manage and risks spiraling out of control.

This toxic brew of financial, economic, political and institutional risks is likely to be a key factor in the formation of prices in 2019; the amplitude of crude price fluctuations will increase over the course of the year, even if annual average prices do not stray far from 2018 averages. Fundamental price signals are being drowned out by a lot of noise, and a more complex set of factors have now become key drivers of oil prices.

Stay tuned for future posts as we examine the structural oil price volatility in the age of shale and implications for US production, and the detailed assessment of the global fundamentals and supply, demand and price forecasts.

This post is derived from a five-part report examining Global Oil Markets in 2019-2020.

To follow the series or request for the full reports, please see Global Oil Markets 2019-2022.

Posted on 18 February 2019

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.