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Brent Crude prices are expected to trade between $60 and $70 a barrel by the second half of this year, unless a sharp global economic slowdown mars the outlook for global oil demand, the Arab Petroleum Investments Corporation (APICORP) said in its latest energy research note.
Following the four-year highs of $85 Brent Crude in October, the international benchmark slumped to just $54 at the end of 2018. The key reasons were concerns about global economy, rising production in the three biggest oil producers—the U.S., Russia, and Saudi Arabia—and a drop in sentiment, said (APICORP), a multilateral development bank set up in 1975 under an agreement signed by the ten Member States of the Organization of Arab Petroleum Exporting Countries (OAPEC).
The collective production cut of 1.2 million bpd from OPEC and its Russia-led non-OPEC partners in the deal might not be enough, APICORP warns, but noted that “The dynamics of oil prices in 2019 will also depend in large part on OPEC’s effectiveness in implementing the cuts, balancing the market and reinforcing the credibility of its signals.”
“While OPEC is expected to cut its output in 2019 in an attempt to balance the market, US production should maintain its upward momentum,” the bank said.
According to APICORP, the pace of global oil demand will be more important for oil prices than the supply side of the market.
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“According to recent research from the OIES, stronger than expected oil demand growth has been responsible for 80% of the market rebalancing and thus any slowdown in the global economy that results in lower demand growth will have a drastic effect on oil prices. And concerns about the global economy have been mounting,” APICORP said.
“In conclusion, purely based on fundamentals, a collective cut of 1.2 mb/d between OPEC and its allies, high probability of supply losses from Iran, Venezuela, Libya and Canada, and global oil demand growth of 1.4 mb/d, the market will achieve balance in 2019.”
Oil prices will continue to be under pressure until the market begins to show signs of stock drawdowns, according to APICORP.
“OPEC’s primary challenge will be to address the physical market imbalances, and assert its credibility to consistently manage expectations and sentiment,” the bank said.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.