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Consultancy firm Rystad Energy said the outlook for short-term oil demand remains weak over global economic uncertainty and a fierce trade war between the US and China

Bjørnar Tonhaugen, head of oil market analysis at Rystad Energy, added, “Economic recession risk and further escalation of the US-China trade war are key concerns in the near term. How long OPEC+ is willing to continue to manage production adds uncertainty.”

Even though the current base case scenario of Rystad Energy does not assume an imminent recession, it has identified various negative indicators. The Chinese economy continues to lag, posting only a 6.2 per cent growth rate most recently, and the US is also showing signs of deceleration.

“This adds downside risk to already moderate growth numbers. Continued worsening of US-China trade relations could lower demand growth by 200,000 bpd to 1.0 mmbbl per day in 2020,” Tonhaugen observed.

Although cutbacks in OPEC production have helped to boost oil prices so far this year, there is plenty of production ticking up outside OPEC nations. The growth forecast for 2020 is quite exceptional, rising by three million bpd or more over a period of just nine months if next year OPEC+ does not extend or deepen its production cuts.

“We a see clear downside risk to 2020 prices due to excessive supply growth. We still believe the market does not recognise the positive effect on crude demand that IMO 2020 will bring. However, if the IMO effect on crude demand is less than expected, OPEC intervention may be needed as early as the first quarter of 2020 to avoid imbalances in the oil market,” Tonhaugen added.