Oil in Global Economy Series: Crude suffers worst H1 in two decades

When OPEC members and 11 non-OPEC participating countries including Russia agreed to reduce global supply by 1.76 million barrels per day beginning this year, they hardly could have imagined that despite their efforts crude oil would suffer its worst H1 in almost two decades. Boosted by the agreement, at the end of last year WTI crude oil was trading at $43.8 per barrel and the North Sea benchmark Brent crude was trading at $56.8 per barrel.

As the continued increase in the crude production in the United States and revival of production in two exempted countries within the OPEC, Nigeria, and Libya continue to pour doubts over the ability of the agreement to balance the market, the oil price has slumped around 15 percent in the first half of the year. It is the worst performance since 1998 when price declined by 19 percent in the first half of the year.  Since bottoming in last July, U.S. crude oil production has increased by 900,000 barrels per day.

While oil outperformed last week, it is still under heavy selling pressure. We recommend adding shorts on oil at the current price. Brent is currently trading at $49 per barrel and WTI is currently trading at $46.4 per barrel.