If volatile oil markets are the new normal, the world's three largest oil producers — America, Saudi Arabia and Russia — are the reason why.
During just six months crude oil prices ripped higher by about 20 percent, plunged more than 40 percent and snapped back 25 percent. The intense volatility is something analysts warn is becoming par for the course in global oil markets.
December was a real nightmare for crude, where the swings were $50 at a low, $86 at a high and $68 for the average of Brent crude oil. Brent was trading at just under $62 per barrel in the futures market Friday, while Western Texas Intermediate was close to $53 per barrel.
Booming U.S. oil production, and the rise of the United States to become the world's largest producer, has certainly factored in the shift away from OPEC as the main entity controlling supply and prices. In 2016, Saudi Arabia led other OPEC members to align with Russia and other producers to use their combined clout to manage global energy prices.
Another factor new to the market is the active participation of President Donald Trump, who through tweets and comments has pressured both Saudi Arabia and OPEC to let up on production when prices are high. Trump has also moved to sanction two members of OPEC — Iran and Venezuela — impacting global oil supply.
"In this boom-bust era, as in prior ones, you can have a year or two of stability, but in general when you don't have an effective swing producer and you have big imbalances and geopolitical risk," there's volatility, said Robert McNally, president of Rapidan Energy Group. "I'm telling everybody, 'Buckle up.' That's the market we're in for the foreseeable future."
The Saudi-Russia alliance raised production last summer to help add oil to the market ahead of the Iran sanctions and amid concerns of a tight market. Russia and Saudi Arabia touted their joint effort, and their broader relationship was front and center last year when a smiling Russian President Vladimir Putin met Saudi Crown Prince Mohammed bin Salman on the sidelines of the World Cup.
The new dominance of the United States in the oil market, combined with the Saudi-Russia alliance, means new tensions, and the industry will have to adjust. Oil supply also only looks set to increase with more U.S. output, as well as growing production from places like Brazil. The U.S. could also be in a position to send many more barrels out into the world, after infrastructure projects to transport crude from the Permian basin in Texas are completed later in the year.
"It certainly means we're going to be in a more volatile world when it comes to oil prices. I think it means more caution about long-cycle oil projects. I think that's an immediate impact," said Daniel Yergin, vice chairman of IHS Markit.
"I think the oil price is moved by what happens with the overall financial markets. It means sentiment will have a bigger impact on the oil price," he said. "A big surge in U.S. oil production becomes bearish for the global market so you get more and more complicated feedback loops."