Oil prices have failed to shake off last year's volatility. Photo/Rob Tucker.
There is little new year optimism for oil traders.
On their return to the commodity desks of oil majors and hedge funds a market awaits in the throes of its deepest volatility in years.
It is now three years since an oversupply of oil brought global crude prices to its knees.
Still, the market staggers under the weight of doubt over demand for crude and its ability to supply it.
In the year ahead, souring geopolitical tensions and global economic fears will be heaped atop.
"This turn of the year feels a little different to us and for many reasons," reads a letter from the heads of Jefferies to the US investment firm's clients.
"The foundation doesn't feel as firm, the future doesn't feel as certain and optimistic, and the path forward does not seem as clear.
"But unlike other turbulent periods, the reasons why are not obvious," write Richard Handler and Brian Friedman, the chief executive and president, respectively.
The influence of geopolitics on global markets threatens to untether oil prices from their foundations as a new breed of market player faces down a new type of market challenge.
"For a brief period the energy market in 2018 bore all the hallmarks of having stabilised with some sense of normalcy returning," says Jon Rigby, of Swiss investment bank UBS. "But that all changed in October."
In a month the oil market endured its steepest fall in over two years. Investor jitters over global economic growth, and its impact on future oil demand, dominated trading desks.
By the end of November, Brent crude prices had plunged by almost a third to the lowest in over a year.
Even Opec's promise to tighten oil taps in 2019 could not see off a Christmas slump to less than $55 a barrel.
The road ahead is no less bumpy. It was once a market dominated by the relative certainty of data; the ebb and flow of crude supplies meeting the global appetite for crude.
In 2019 the world's largest commodity market will keep one eye on exchange rates, interest rates, economic headlines and the Twitter account of the US president.
The world's largest oil traders predict that prices will remain between $60 and $80 a barrel this year.
Even this ultra-wide range is no guarantee against price swings beyond these bounds.
In theory oil prices may begin to rise through the first half of the year.
Opec's decision to tighten its grip on crude exports should help to erode the worrying oversupply of oil in the market.
The price of Brent crude may even return to $80 a barrel once Iran's oil exports are wiped out by the full brunt of US sanctions.
Only a few months later and this could all be undone.
In the latter part of the year an unprecedented flood of US shale oil into the global market could drive oil back towards $60 a barrel if the infrastructure bottlenecks keeping the shale boom at bay clear in the second half of 2019.
"It's a mug's game," says Chris Midgley of S&P Global Platts.
"In a high-volatility world the market fundamentals don't always play out."
In his forecasts the wider economic market gloom may keep depressed oil prices from recovering in the months ahead, despite Opec's best laid plans.
Lower oil prices, in turn, could keep US rigs from mushrooming across its shale heartlands as quickly as expected.
This subtle shift away from supply-demand modelling may mean oil prices rise in late 2019 rather than drift lower.
Helima Croft, of RBC Capital Markets, believes the market has been increasingly distracted from the basic fundamentals of oil supply and demand for years.
"There is a problem in the market. It's almost like a herd mentality meets attention deficit disorder," she says. "It's as though the market really only has time to focus on one story. It's headline-driven."
A knee-jerk market reaction has become more common as the main players have changed. In the wake of an exodus of trading houses and institutional investors from the commodity markets, hedge funds have played a bigger role in setting the tone.
The growing influence of funds can itself fan the flames of a combustible market.
"Whereas physical traders are likely to make a long-term view, funds are trying to make money from volatility and short-term changes," Midgley explains.
The oil price crash in October last year came in the wake of a hedge funds slashing their bets on the oil market to the lowest number in over a year.
The deeper question which traders may soon be pushed to address is whether the price of oil has become dislocated from its value as a commodity.
At the heart of this question is the tension between the "real" cost of producing oil and the price that many major oil-producing economies have come to rely on, says Midgley.
"Since the oil price crash we've heard a lot from oil majors about low break-even costs. It brings confidence to their shareholders but it begs the question: if we can find oil more cheaply and extract it more efficiently then shouldn't oil prices be drifting down? The jury is definitely still out on that one," he says.
It might just be a mug's game for another year.
-Telegraph Media Group
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