S&P Global Ratings cut its price outlook for Brent crude oil from US$65 to US$55 and for West Texas Intermediate from US$60 to US$50 for this year, citing a worsening demand situation for the commodities.
"The on-going trade war between the US and China as well as news of China's economic slowdown, has led to concerns about the outlook for global demand," the ratings agency said in a statement.
It added that the record levels of oil production in Russia and Saudi Arabia ahead of the latest OPEC+ agreement reached in December also contributed to the price outlook revision.
The news comes amid a recovery in oil prices today, after a choppy start of the year for both Brent crude and WTI. Since trade began today, both benchmarks have been on the rise: at the time of writing, Brent crude had accumulated a gain of 2.29 percent to trade at US$57.23 and WTI was up 2.14 percent to US$48.10 a barrel.
The recovery may be a result of the entry into force of the OPEC+ agreement and the news about a U.S.-China trade meeting that will take place at the start of next week in Beijing, with traders probably pinning their hopes on these talks to suggest a way out of the dispute that was among the top factors contributing to the price slide from the last quarter of 2018.
However, the relief may be temporary. OPEC's decision to start cutting again in partnership with Russia and other non-cartel producers, according to S&P Global Ratings, "did little to stem the decline in oil prices as concerns about global demand and whether OPEC would honour the production cuts, continued to put pressure on prices." The ratings agency added, though, that "the production cuts at a minimum, will offset the anticipated growth in 2019 from US shale production."
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
There is a growing feeling in the global economy that the trade war could be coming to an end. This will happen because President Trump may have realized that he can’t win a trade war with China and that it is better for him to cut his losses by ending a trade war with China.
The assumption of a slowdown of the Chinese economy is overhyped since the Chinese economy is projected to grow at 6.6% this year compared with 6.7% last year. Such a rate of growth for the world’s largest economy based on purchasing power parity (PPP) should be the envy of the world’s top economies including the United States’. Furthermore, the onging trade war with the United States has never dampened China’s insatiable thirst for oil with its oil imports rising above 10 million barrels a day (mbd) in 2018 and projected to hit 11 mbd this year.
Another bullish development is the realization by the global oil market that the recent cuts by OPEC+ amounting to 1.2 mbd are going ahead and that they will most probably achieve their goal of reducing the glut in the market. This has recently been emphasized by Saudi Arabia cutting an estimated 639,000 barrels of oil a day (b/d) from its exports in December 2018 thus signalling to the global oil market its determination and that of OPEC+ to defend the oil prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London