Global oil demand growth is expected to decelerate from 1.4m b/d in 2018 to 1.0m b/d in 2019 and 2020. Growth in global demand for oil continues to be dominated by emerging and developing economies, with China accounting for half of the incremental increase and India one-fourth, Institute of International Finance (IIF) noted yesterday.
Slower global growth, even with an agreement on de-escalation of the trade war between the US and China, could mean slower oil demand in 2020.
The recent increase in inventories in the US and other major OECD countries raises concerns that the weakening of growth in the OECD and China will dampen the demand for oil, the IIF noted in its updated Oil Market report.
IIF analysts believe that December 6 decision by Opec+ on additional production cuts of 0.5m b/d is still not enough to balance the market in 2020.
They see global liquid fuels inventories rising by about 1m b/d in 2020 after our estimated rise of 0.2m b/d in 2019. Consequently, IIF expect a decline in average Brent oil prices to $60/bbl in 2020, compared with $64/bbl in 2019.
Oil futures contracts point to a decline of prices to an average of $62/bbl in 2020, while Bloomberg consensus forecasts suggest a further decline in oil prices to $61/bbl in 2020. The recent modest increase in Brent oil prices, driven largely by diminishing uncertainty around US-China trade and Brexit, is likely to be short-lived.
According to IIF, the oil market will continue to see robust crude oil production from the USA, Canada, and Brazil, which could lead to a supply glut in 2020. At the same time, growth in oil demand is likely to remain subdued given the continued slowdown in the global economy.
The EIA expects US crude oil production to average 13.2m b/d in 2020, an increase of 0.9m b/d from the 2019 level. The rate at which new rigs are brought into production continues to slow because of lower investment by major oil companies.
Downside risks to oil prices include one or more of the factors like significant increase in Opec supply beyond the current Opec+ agreement; gradual recovery in crude oil production in Venezuela; and acceleration of growth in US oil production beyond our baseline due to further technological improvements and efficiency gains.
Source from: The Peninsula