OPEC - Weakening Demand and Oversupply to Dim Oil Rise in 2019

Oil analysts are taking an increasingly dim view of the prospect of a price rally next year, thanks to unclear demand outlook and surging supply, despite a popular market expectation that OPEC will decide to cut production, the result of a poll launched by Reuters showed.

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38 analysts and economists participating in the survey expected Brent crude prices to average $74.50 a barrel in 2019, down from the $76.88 prediction in October. The poll forecast Brent prices to average $73.20 for this year, in line with the year-to-date $73 average for the global benchmark.

The analysts and economists also see lower average price for WTI Crude – at $67.45 a barrel next year, down from $70.15 in the previous poll in late October.

“In the first half of next year we expect upward price pressure resulting from OPEC production cuts,” said Adrià Morron Salmeron, economist at CaixaBank Research.

“Then, we expect downward price pressures from an uptick in U.S. shale production in the second half, as bottlenecks will disappear, and a deceleration of global growth.”

The Organization of the Petroleum Exporting Countries as well as Russia and other major producers will meet in Vienna on Dec. 6/7 in a bid to shore up oil prices, which have climbed down by over 30 percent from a four-year high of $86.74 seen in early October.

Analysts believed that OPEC could talk about an output cut between 1 and 1.4 million barrels per day (bpd) since the oil market is definitely oversupplied at the moment, and non-OPEC countries could even agree to freeze production or join in the cut considering the recent dramatic fall in oil prices.

A stumbling world economy could erode oil demand growth next year, especially when production from non-OPEC countries is estimated to rise at a record pace.

Supplies from non-OPEC oil producers could expand by 1.5 to 2.2 million bpd next year, led by U.S. shale, a few of the analysts said.

“Sharp increases in U.S. production will be a key impediment in upside potential for oil prices in 2019,” said Benjamin Lu, commodities analyst at Phillip Futures.

Recovering production in Nigeria and Libya who had undergone output drop caused by unrest would also add weight to the possible oversupply.

On the other hand, oil demand was forecast to grow by between 0.9 and 1.5 million bpd next year, compared with a range of 1.1 to 1.5 million bpd expected in the October’s poll.

“On the demand side, the main driver is the question how far worldwide economic growth will slow in 2019 and how far this will lead to lower dynamics of oil demand next year,” one of the participants in the poll said.

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