Uncertainty over global economic and oil demand growth will continue to weigh on oil prices next year as the oversupply in the market will likely persist, the monthly Reuters poll of economists and analysts showed on Friday.
According to 42 experts, Brent Crude will average US$62.50 per barrel in 2020, just slightly up from last month’s poll by Reuters, in which analysts predicted an average price of US$62.38 for the international benchmark next year.
The economists expect WTI Crude to average US$57.30 a barrel next year, also slightly up from last month’s US$56.98 estimate.
At 07:36 a.m. EDT on Friday, WTI Crude was down 0.15 percent at US$58.02 and Brent Crude was trading down 0.62 percent at US$62.88.
The analysts expect weak demand growth in the first half of 2020 due to weak economic growth. On the other hand, most agree that there is too much oil in the market. Demand growth could be anywhere in the range of 800,000 bpd to 1.4 million bpd, according to the experts surveyed by Reuters.
Next year, oil demand growth is expected to pick up from this year’s lower growth pace, but oil supply from producers not part of the OPEC+ coalition—such as the United States, Brazil, and Norway—is seen growing faster than the rise in demand, and offsetting efforts of the cartel and its allies to rebalance the market. Related: How To Invest In An Oil Contango
The International Energy Agency (IEA) sees non-OPEC countries adding another 2.3 million bpd to their supply in 2020, while global oil demand growth is expected at 1.2 million bpd.
In the Reuters poll a week before the OPEC+ meeting in Vienna, most experts expect OPEC and its non-OPEC partners led by Russia to decide next week to roll over the cuts, but deeper cuts are unlikely, because OPEC’s leader Saudi Arabia would not be willing to sacrifice additional market share than it has already done.
Russia is expected to continue playing along, but will still be busting its production cap, Caroline Bain, analyst at Capital Economics, told Reuters.
By Tsvetana Paraskova for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- Powering The $1 Trillion Black Friday Shopping Spree
- The Complete Guide To Drilling
- This U.S. Shale Giant Is On The Brink Of Collapse
As long the trade war continues, the glut will also stay with even the possibility of increasing.
OPEC + can only agree to extend the current production cuts by a few months but it will never agree to deepen the cuts because such a measure is futile as it only causes it to lose market share with no positive impact on prices. Furthermore, Russia will never agree to that.
The claim by the International Energy Agency (IEA) that it sees non-OPEC countries (the United States, Brazil and Norway) adding another 2.3 mbd to global oil supply in 2020 is not only typical hype from the IEA but also self-delusional.
US shale oil production is already in decline as evidenced by the continued fall in oil rig count. US oil production could drop next year to around 10 mbd.
It will take Brazil more than 10 years to be able to raise its oil production significantly above the current production of around 2.6 mbd because of high costs of production from the pre-salt reserves. And with break-even price of $40 per barrel, Brazil needs oil prices exceeding $80 a barrel to attract major foreign investments as evidenced by the recent flop of its oil auction.
As for Norway, its oil production has been declining by an average annual rate of 2.5% from 2.6 mbd in 2008 to 1.84 mbd in 2018.
Therefore, instead of adding 2.3 mbd as the IEA is hyping, the US, Brazil and Norway would by producing 2.67 mbd less in 2020.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London