Brent crude oil is expected to average US$65 per bbl in 2019 and US$68 per bbl in 2020, according to the Wood Mackenzie
The research and consultancy group added that despite the weakening sentiment about the global economy, oil demand growth remains robust, for now. On the other hand, supply growth is also slowing.
After an estimated increase of 2.5mn bpd in 2018, global supply is forecast to grow 1.4mn bpd in 2019 and 1.8mn bpd in 2020. This assumes that OPEC continues to restrict production by the end of 2020, it added.
Ann-Louise Hittle, vice president of macro oils, said, “Wood Mackenzie has adjusted our annual average price forecast for Brent by just one dollar-from US$66 per bbl for 2019 to US$65 per barrel. Our forecast of US$68 per bbl for 2020 remains unchanged.”
The company stated that the global markets were volatile in the new year, and oil was no exception. Brent traded between US$62 per barrel on 7 December 2018, before falling to US$51 per bbl on 21 December 2018. Mixed macroeconomic data have driven much of the volatility, with political uncertainty compounding concerns of a sharper than expected economic slowdown.
“Our analysis indicates the oil market was overbought in October when Brent reached US$85 per bbl and oversold in December when it dropped back to US$51/bbl,” she indicated.
“Despite our view that there was ample supply through to the end of 2019, fears of a lack of OPEC spare capacity, concerns of an ensuing supply crunch, and focus on a US$100 per bbl end-point back in October led to inflated prices. In contrast, December’s sharp fall was the result of over-selling on fears for global economic growth–largely driven by the US-China trade war, and a perception that OPEC would not cut output enough,” she explained.
The company noted that “the market remains focused on the demand outlook and there are a number of risks for the global economy that could depress the modest growth we forecast in oil demand and dampen the oil price outlook.”
Ed Rawle, Wood Mackenzie’s chief economist, commented, “Global GDP growth is slowing off a strong 2018 base. The question is how quickly the world economy decelerates. Sharp declines in survey measures of economic activity point to manufacturing slowdown in the US, Europe and China. This tallies with data pointing to weakening global trade.
“Some of the current slowdowns is linked to the global economic cycle, but there is concern that political uncertainty will exacerbate the cyclical downswing and send key markets into recession. With US-China trade negotiations ongoing and Brexit hanging over Europe, the risk of a worse-than-expected slowdown is mounting. And this time around, there is little in the way of firepower available to policymakers to help stimulate the economy if things do get ugly. The market is right to be concerned.”
He further added, “Having said that, Wood Mackenzie expects a benign global economic slowdown, with global GDP growth decelerating from 3 per cent in 2018 to 2.8 per cent in 2019 and 2.6 per cent in 2020. In our base case, we expect global oil demand to grow 1.1mn bpd in 2019 and 1.3mn bpd in 2020.”
