OPEC, allies face tough competition in 2020

Growing US crude inventories are putting pressure on oil prices. (AFP)
Updated 29 November 2019

OPEC, allies face tough competition in 2020

  • Shale oil could lose momentum as inventories increase, analysts’ poll warns on eve of major OPEC policy talks

BENGALURU: Oil prices will remain subdued in 2020 as growth concerns weigh on demand and fuel a glut of crude, a Reuters poll showed on Friday ahead of production-policy talks among OPEC and its allies next week.

The poll of 42 economists and analysts forecast Brent to average $62.50 a barrel next year, little changed from last month’s $62.38 outlook, which was the lowest prediction for 2020 in about two years.

The benchmark has averaged about $64 per barrel so far this year.

“There is simply too much oil in the market,” LBBW analyst Frank Schallenberger said.

The Organization of the Petroleum Exporting Countries and its allies face stiffening competition in 2020, the International Energy Agency said this month, predicting non-OPEC supply growth to surge next year.

OPEC’s own outlook reflected a surplus of around 70,000 barrels per day (bpd) next year, building a case for the group to maintain supply curbs when it meets on Dec. 5-6 in Vienna.

Analysts pegged demand growth at 0.8-1.4 million bpd (mbpd) next year. While most respondents said OPEC and its allies were likely to maintain output cuts, they did not anticipate deeper curbs.

“Saudi Arabia is likely to want to keep supporting oil prices to improve its fiscal position. However, the Kingdom probably won’t push for deeper cuts to avoid losing more market share to the US,” Capital Economics analyst Caroline Bain said. “We expect Russia to go pay lip service to Saudi’s decision, but to continue producing above quota.”

Since January, OPEC and its allies have been cutting output by 1.2 mbpd, and had agreed to do so until March 2020.

The first half of 2020 could see global inventory builds as weaker economic growth chips away demand, said Harry Tchilinguirian, global oil strategist at BNP Paribas.

US crude inventories are now about 3 percent above the five-year average for this time of year, the Energy Information Administration said on Wednesday.

Brent prices have been pressured by concerns about slowing global growth, exacerbated by the US-China trade conflict. Prices are down about 12 percent from a roughly four-month peak hit in September.

The 2020 outlook for West Texas Intermediate, however, rose to $57.30 per barrel from October’s $56.98 consensus.

While US production will remain high, overall shale output could lose some momentum, analysts said.

“US shale growth will slow in 2020 and with expectations that OPEC+ will continue with their production cuts, prices should be fairly supported in the first half of the year,” said Edward Moya, senior market analyst at OANDA.

Spike in tensions but no oil market shock, says IEA

Updated 17 January 2020

Spike in tensions but no oil market shock, says IEA

  • Strategic reserves play key role in minimizing disruption to global supply amid US-Iran face-off, agency says

PARIS: The brief spike in Middle East tensions as the US and Iran faced off has served as a reminder of the havoc disruptions in supply from the key oil-producing region could wreak on the global economy, the International Energy Agency (IEA) said on Thursday.

But it said ample stocks and production elsewhere mean the world is relatively well placed to react to a crisis.

Washington and Tehran are currently in a standoff after tit-for-tat military actions over the past two weeks that had sparked fears of a large-scale confrontation that could choke off the Strait of Hormuz through which 20 percent of global oil supplies flow.

“We cannot know how the geopolitical situation will play out over time, but for now the risk of a major threat to oil supplies appears to have receded,” the IEA said in its latest monthly report on oil markets.

It noted that oil prices have receded after jumping $4 per barrel, much as they did in September when a series of attacks on Saudi oil facilities briefly knocked out part of the production of the key exporter.

“Today’s market where non-OPEC production is rising strongly and OECD stocks are 9 million barrels above the five-year average, provides a solid base from which to react to any escalation in geopolitical tension,” said the Paris-based organisation, which advises industrial nations that are members of the Organisation for Economic Cooperation and Development on energy policy.

“As a back-up resource, the value of strategic stocks has once again been confirmed.”

The IEA was created in the wake of the 1973 oil shock provoked by an embargo imposed by OPEC and IEA members now hold reserves worth three months of net imports.

The oil market has been driven in recent years by a surge of non-OPEC production that has outstripped demand, with OPEC and its allies moving to restrain production to support prices.

The IEA’s forecasts see faster growth in demand for oil this year thanks to expectations that global growth will pick up as trade tensions diminish.

However, the 2.1 million barrels per day (mbd) growth in non-OPEC supplies will far outpace the increased demand of 1.2 mbd, putting further pressure on OPEC and its allies to further cut production.

During 2019, falls in OPEC production nearly completely offset a rise in production from countries outside the group.