Oil prices having touched a month high are back under pressure. This time around, it is the US EIA’s short term energy outlook report that has served as the dampener. Quite astonishingly, the agency, considered as one of the chief most oil dynamics forecasting bodies around the world, lowered the demand growth projections for the seventh straight month.
It is the first time ever that the oil demand growth projection has fallen under a million barrel per day, to 0.9 million barrel a day for 2019. The US EIA had started the year with a demand forecast of 1.5 million barrels per day, back in January 2019. The forecast is reflective of decelerating growth in global oil-weighted GDP, based on forecasts from Oxford Economics.
And if the demand side was not enough, news from the supply side of affairs gives credence to the view that oil market imbalance is not going away in a hurry. The US oil production is all expected to grow by 1.2 million barrels a day to 12.2 mbpd in 2019, which single-handedly accounts for more than the growth forecasted for global oil demand. This explains why the Opec plus members may have to realistically think of a deeper cut t maintain status quo, as US oil production is only gathering steam.
The 2020 US oil production is expected to cross 13 mbpd, and the US production growth for 2020 alone is significantly greater than the forecasted demand growth for 2020, at a little over 1.3 mbps. The onus now lays with the Opec members particularly Saudi Arabia and Russia to keep all other s motivated to remain committed to the production freeze deal for another year. And that may be easier said than done, as signs are fast appearing that Russia may not agree for deeper cuts than the current position.
Little wonder why the oil price forecast has also been revised south to a little over $60/bbl for much of next year, with high downside risks. A glimpse of the risk premium was observed the other day, when Trump’s sacking of the National Security Adviser, took prices down by more than 3 percent in a single session. It may well be a knee-jerk reaction, but the dampened demand predictions have surely added to the equation, and it would not take less than a drastic revision in fortunes around global happenings such as US-China trade war and European economy, to shake things up.