A day after oil prices plummeted again amid global market sell-offs and fears of oversupply, Saudi Energy Minister Khalid al-Falih said that he expects global oil inventories to drop by the end of the first quarter next year.
The oil market is vulnerable to political and economic factors and market speculation, al-Falih told reporters in Riyadh on Wednesday.
OPEC and its Russia-led non-OPEC partners in the production cut deal are committed to drawing down the global oversupply, the energy minister of OPEC’s largest producer Saudi Arabia said.
“We remain focused on fundamentals, I can tell you we will achieve balance between supply and demand in 2019,” al-Falih noted, as quoted by Reuters.
On Tuesday, oil prices crashed to a year-low, as the market continues to be concerned with the oil oversupply and a possible slowdown in global economic growth that could lead to lower oil demand growth. On Monday and on Tuesday, oil prices were also hit by a global sell-off in equities.
Further weighing on oil prices later on Tuesday came the report by the American Petroleum Institute (API) which pointed to a surprise crude oil inventory build of 3.45 million barrels for the week ending December 14, compared to analyst expectations that we would see a draw in crude oil inventories of 2.475 million barrels.
Since the OPEC/non-OPEC new production cut deal was struck on December 7, the oil market has been unconvinced that the 1.2 million bpd cut for six months starting in January would be enough to offset inventory builds at a time when the global markets fear a slowdown in economic growth and at a time of rising U.S. oil production.
On Wednesday, oil prices steadied after Tuesday’s plunge and were slightly up in early morning trade. At 09:09 a.m. EDT, WTI Crude was up 0.54 percent at $46.85 and Brent Crude was up 0.21 percent at $56.38.
By Tsvetana Paraskova for Oilprice.com
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Two major reasons have been behind the recent slump in oil prices. The first is the realization by the global oil market that US sanctions have failed completely so far to cost Iran a single barrel of oil and consequently the risk of supply shortage has not materialized despite claims by the overwhelming majority of analysts and investment bankers that Iran will lose 500,000 barrels a day (b/d) to 1.5 mbd.
The second factor is US manipulation of global oil prices by falsifying claims about rising US oil production and significant build-up in US crude and products inventories and hiking the value of the US dollar opposite other currencies.
The US consumed on average 20.5 mbd in 2018 according to the US Energy Information Administration (EIA) and claimed to have produced 11.7 mbd thus needing to import 8.8mbd. If so, where did the crude for US inventory build-up come from?
It came from US oil imports of 4.64 mbd in 2017 from OPEC according to the 2018 OPEC Annual Statistical Bulletin. These imports are being used by the United States to build-up its crude inventory and thus manipulate oil prices to the detriment of OPEC members. If this is the case, then OPEC members should refrain from exporting any oil to the United States and concentrate on their biggest oil market, namely the Asia-Pacific region.
Another measure is for Saudi-led OPEC to stop using the petrodollar and start pricing and selling their crude oil in petro-yuan since almost 80% of their crude oil exports go to the Asia-Pacific region primarily China.
And rather than the US Congress pushing a bill, the so-called “No Oil Producing and Exporting Cartels Act,” or NOPEC, that would let the US sue OPEC for an alleged oil price fixing, it should be OPEC who should take the initiative and sue the United States at both the World Trade Organization (WTO) and the International Court of Justice for manipulating oil prices and thus damaging the global economy and the livelihood of oil-producing nations.
The OPEC+ production cuts will be implemented in January 2019 and as in the previous cuts they will take a few months before their full impact becomes evident. So please don’t jump prematurely into conclusions, Ms Paraskova.
I have no doubt whatsoever that the bullish factors in the global oil market will prevail in 2019 enabling prices to resume their surge upwards.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London