2019 starts with a high degree of uncertainty over the path of the global economy. Leading economic indicators point to a downturn and US trade policy has halted the former direction of travel towards more globalised free trade.
The Chinese/US trade war rumbles on, the EU and the UK stand on the precipice of a ‘no deal’ Brexit divorce, which threatens the economic prospects of both. The era of quantitative easing appears to be over and interest rates are on the rise. All of the world’s major economies face a tougher economic outlook.
Given the close correlation between global GDP and oil demand, oil market participants have become bearish, calculating that muted oil demand growth means OPEC must do more than it currently intends to balance supply and demand.
At its last meeting in December, OPEC and its non-OPEC partners agreed to curb output by 1.2 million b/d for the first six months of this year. Given rising US output and the deepening gloom overhanging the global economy this was regarded by the market as inadequate, causing oil prices to plummet from just over $60/bbl in mid-December into the low $50s towards year’s end.
However, despite the prevailing pessimism, a downturn is not yet established fact, nor is a significant supply surplus in the oil market throughout 2019.
Less growth not no growth
The IMF, in its October World Economic Outlook, predicted global GDP growth of 3.7%, the same rate as in 2017 and…