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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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IMF: Expect Oil To Fall Below $60

Oil Rig

The International Monetary Fund dampened optimism about oil prices by forecasting the average for Brent at a little over US$58.24 a barrel next year, down from this year’s projected US$62.31. And things only get worse from there, with the IMF expects oil prices to drop to US$53.6 a barrel by 2023 as global economic growth slows down.

These projections were contained in the IMF’s latest World Economic Outlook the authority released this week, and were motivated by expectations of increasing oil supply. This increase will counter the tailwind of strengthening global economic growth this year and the next, apparently: the IMF is upbeat on the world’s economy in 2018 and 2019, which should translate into higher oil demand—but this higher demand will not be enough to prop prices up.

This bearish report doesn’t even reflect a worst-case scenario, with the risk of a deepening trade rout between the United States and China not having been factored by the IMF in its oil price estimates in this edition of the WEO. Chances are that as the tensions between China and the U.S. worsen, the next edition of the report will feature the risks associated with a string of tariff exchanges between Washington and Beijing as well as any other move either of the two makes in the next three months. Related: The Biggest Hurdle To China’s Yuan-Priced Crude Benchmark

Despite not including the downside risks of the U.S.-China trade war, the IMF did note that there are dangers for the global economy associated with protectionist legislation. In his statement accompanying the release of the WEO, the IMF’s Chief Economist Maurice Obstfeld said the United States should be wary of starting a trade war, as it would do nothing good for its economy, but rather affect it negatively.

The fact that "major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical - especially when the expansion is so reliant on investment and trade," Obstfeld said, adding that a trade war would “actually widen the U.S. current account deficit."

There is already speculation that another shot from Washington might prompt China to shoot back with tariffs on oil and gas imports, which would indeed have a negative impact on the U.S. economy, just as the country is establishing itself as an oil and gas exporter to be reckoned with.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on April 18 2018 said:
    The IMF is not infallible. It has made flagrant mistakes in its projections in the past. Its recent projection about oil prices is based on contradictions.

    How could the IMF be upbeat on world’s economy in 2018 and 2019, which should translate into higher oil demand and in the same breath says that this higher demand will not be enough to prop prices up unless it is projecting rising supplies creating a glut in the oil market.

    Such supplies could come from either OPEC and Russia or from US shale oil. OPEC members and Russia are determined to prevent a recurrence of glut by extending their production cut agreement well into the future. As for US shale oil, its production is not big enough to cause glut. So the IMF argument about prices is extremely shaky to say the least.

    Even US tariffs on China and an escalation towards a trade war with the United States will not slow China’s rising demand for oil as it embarks on its Silk Road & Belt initiative which in terms of trade could be bigger than its trade with the United States.

    Nobody wins in a game of tit-for-tat tariffs. In a war of escalation, the US has more to lose. A trade war would actually widen the US current account deficit. The Chinese economy today is highly integrated with the world economy. The US is a large but declining market.

    In time, President Trump will realize that China will not bend the knee before him and stop his trade war against it. This is far better than damaging the global economy and themselves by a trade war.

    Based on the current robust economy projected by the IMF to grow at 3.9% per annum in 2018 and 2019, fast-rising global demand for oil adding 1.7-2.0 mbd to global demand this year over 2017 and a virtually re-balanced oil market, I project oil prices to reach at least $75 this year, rising to $80-$85 in 2019 and hitting $100 or higher in 2020.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • John Brown on April 18 2018 said:
    There is a dash of reality for the oil and financial industries that are desperately trying to manipulate the price of oil higher despite the fact that their is plenty of oil sloshing around the world, and OPEC/Russia have to idle more and more production. U.S. production continues to soar with WTI over $65, so now we read article after article about how they may be able to produce the oil but have a bottleneck getting it to market. Trust me, if they can produce it they will figure out how to deliver it, but the stories help boost prices in the meantime. The fact remains that oil and gas are not scarce commodities any longer, but Saudi Arabia does want $80 a barrel for its IPO. So lets hope global growth, especially in the USA continues strong, OPEC/RUSSIA remain willing to idle more production, and U.S. producers can get more and more oil out of the ground in the USA to take advantage of these prices while OPEC/RUSSIA leave theirs in the ground. Higher prices give U.S. producers a great window to fill their pockets, and renewables a great window to continue gaining market share while lowering their cost until they are actually less than oil and gas. Even today despite this IMF story WTI is up $2 to $68.51 and despite growing U.S. rig counts. That shows U.S. producers now is the time to go for it. They have a window where OPEC/Russia wants $80 oil, and will do what is necessary, including idling more production, to push the prices there, regardless of what it means a year and two from now.
  • JACK MA on April 27 2018 said:
    Me Jack Ma was at Vegas long ago and sit happy at comedy show. Can no longer think of name but the funny man was joking about the IMF and the crowd was on the floor laughing. Funniest show ever. Not sure why more comedians NOT use words from IMF and Central Banks as the tales from them are so funny and the comedian would get free material. IMF always made me laugh better than any Chinese comedy show from long ago. Me Jack Ma have broken ribs of laughter from IMF speeches like elementary school educations. Jack ma have cast on broken ribs now from humor. IMHO

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