Three essential factors will determine the direction of the oil price next year, according to consultancy firm Rystad Energy
Bjørnar Tonhaugen, head of oil market research at the firm, argues that a balanced oil market in 2020 depends on three pillars: no global recession; continued OPEC production cuts; and the impact of IMO 2020 regulations.
“Markets can balance with an extension of OPEC cuts through 2020,” said Tonhaugen in the energy analyst’s latest weekly report.
“We believe the IMO 2020 regulations will create more demand for crude oil. Moreover, the global economy needs to avoid a sharp slowdown and oil demand recover to more normal growth rates of between one million and 1.2mn bpd. If the stars fail to align, however, OPEC may need to discuss much deeper cuts to support the market,” Tonhaugen added.
In its latest Oil Market Balances Report, Rystad Energy finds that the market can be balanced by 2020 even at current oil prices, as latest revisions suggest a call-on to OPEC for crude oil to reach 30.1 mmbbl per day next year, compared to 29.5 mmbbl per day in last month’s report.
However, a balanced market next year also implies that the global economy does not enter a technical recession and that demand recovers to around 1.2mn bpd growth, the firm stated. OPEC needs to maintain current production levels, with extended cuts through at least 2020, while the introduction of stricter shipping fuel regulations – the so-called IMO 2020 effect – will cause a net positive impact on crude demand growth next year of about 1.0mn bpd to balance the global gasoil market.
“Without the expected additional crude runs in 2020, on top of the normal growth in refinery runs to keep up with overall products demand without IMO 2020, prices will be even lower next year – unless OPEC cuts its production to around 29mn bpd in 2020,” Tonhaugen remarked.
Rystad Energy forecasts that the increase in production of crude oil and leasing condensates outside OPEC and Russia will reach two million bpd in 2020, down by 0.2mn bpd from its previous estimate. According to firm, the US oil supply forecast for December 2020 is revised down by 0.5mn bpd to 14.0mn bpd, which represents an annual increase of 1.15mn bpd.