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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Is A Crude Glut Looming?

Crude oil supply in the world exceeded demand by 900,000 bpd in the first half of the year, the International Energy Agency said in its latest monthly Oil Market Report, adding that forecasts had pointed to a deficit of half a million barrels daily.

What’s more, the authority said the overhang will extend into the second half of the year as well: “This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter,” The IEA said. “Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future.”

In the demand sector, however, the IEA had some good news. It said that despite “an exceptionally weak” rate of growth during the first quarter—310,000 bpd—and more robust growth of 800,000 bpd during the second quarter, global oil demand would grow by an average 1.8 million bpd in the second half of the year. This acceleration, according to the authority, would come on the back of higher output from petrochemical plants and improving economic activity.

The latter part of that projection is at odds with persistent worry about the global economy, most recently expressed by the chairman of the U.S. Federal Reserve Jerome Powell. In his testimony to Congress earlier this week, Powell said he expected a slowdown in the United States caused by a broader slowdown in the global economy, not least because of the U.S.-China trade spat.

Going forward, the IEA said it forecast a supply overhang for 2020 as well, on the back of rising supply from non-OPEC producers. That’s in tune with OPEC’s own forecast for 2020: the cartel forecast non-OPEC production growth of 2.4 million bpd. The IEA is a bit more moderate, expecting a supply increase of 2.1 million bpd in 2020 from non-OPEC producers.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on July 12 2019 said:
    Since the oil price crash of 2014, the glut has never left the global oil market. The trade war between the US and China has been casting dark clouds over the global economy creating uncertainty and depressing the global demand for oil and therefore oil prices. This very important factor has been enhancing an already existing glut and to some extent undermining OPEC+ production cut agreement. That is why oil prices have of recent times been ranging between $60 and $66 a barrel.

    Still, robust fundamentals in the global oil market are slowly asserting themselves as evidenced by the growth of global oil demand by an average 1.8 million barrels a day (mbd) in the second half of the year.

    Once a deal is reached to end the trade war, global oil demand and oil prices will significantly trend upwards with oil prices surging to $70s and even rising beyond $80 a barrel.

    To all appearances, it seems that President Trump blinked first. He has touted his “far better than expected” recent meeting with Chinese President Xi Jinping at the G-20 summit in Japan, but experts say that Beijing appears to have gained an upper hand in the trade war. Trump said after his meeting with Xi that Huawei, the Chinese tech giant, will be allowed to purchase US products — suggesting a softening in Washington’s blacklist of the Chinese tech firm.

    Washington had earlier announced a ban that restrict Huawei’s ability to do business with US firms due to national security concerns. Trump’s apparently softer stance on the Chinese tech giant was seen by some observers as a major concession that the US has granted China. It looked like China is coming out as a winner from this G-20.

    Reports from Washington indicate that the US has eased restrictions on Huawei in a bid to get trade talks moving again. Wilbur Ross, the US Commerce Secretary, said businesses could deal with the Chinese telecoms company but only after getting a licence and showing it would not threaten national security. President Trump has reportedly softened his stance on Huawei as he seeks to ease the trade between his country and China.

    And while China could emerge the less hurt from a continuation of the trade war, there could be no winners. Both titans will be losers with the global economy the biggest loser by far.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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