Oil market. Review of 2019 and outlook for 2020

Published on

January 8, 2020


Article by

Hermes Pérez

According to the Organization of the Petroleum Exporting Countries (OPEC), the Global economic growth slowed in 2019, affected by a variety of challenges. Trade issues not only led to reduction in global final consumption but also caused investment growth to decelerate. On the positive side, global trade slowdown has likely bottomed out, and now the negative trend in industrial production seen in 2019 is expected to reverse in 2020. As a result, global economic growth is forecast at 3.0% for both 2019 and 2020.

Recent progress on various trade agreements such as the conclusion of the Regional Comprehensive Economic Partnership of Asian-Pacific nations may provide the base to re-energize the momentum in global trade, although challenges remain, particularly regarding ongoing trade talks between the US and its trade partners, particularly China.

While global monetary policies continue to be accommodative, high debt levels in many major economies represent some risk. Additional challenges are posed by fiscal issues in few EU Member Countries, Brexit, and Japan’s ongoing slowdown. Fiscal imbalances in emerging and developing economies may also have a negative effect on global economic growth, while recent social unrest in some economies may add more downward pressure.

Global oil demand is projected to rise by 0.98 million barrels per day (mbd) in 2019, mainly due to cooling macro-economic indicators in major economies. Oil demand in the OECD is projected to grow by a marginal 0.02 mbd in 2019, due to slower-than-expected demand in the Americas and Asia Pacific. Weaker-than-expected diesel requirements in the US amid the slower pace in manufacturing and construction activity have limited demand growth in the current year.

In Asia Pacific, significant petrochemical plant turnarounds reduced demand for petrochemical feedstock in 1H19. In non-OECD oil demand in 2019 is anticipated to rise by 0.96 mbd, primarily as a result of slower-than-expected demand in India due to reduced industrial and transportation fuel requirements in 2Q19 and 3Q19.

In 2020, global oil demand is expected to grow by 1.08 mbd, with the OECD growing by 0.07 mbd. OECD Americas is anticipated to be the only OECD region in positive demand growth territory next year, supported mainly by petrochemical capacity additions. In the non-OECD region, oil demand growth is projected to be around 1.01 mbd, with growth projected to improve in Other Asia, Latin America and the Middle East. Indeed, the transportation and petrochemical sectors are expected to continue leading oil demand growth in 2020.

On the supply side, non-OPEC oil supply growth has been lower in 2019 than initial market expectations, now standing at 1.82 mbd compared to the initial projection of 2.10 mbd in July 2018.

Weaker-than-expected growth in Canada, Brazil, Norway, Kazakhstan, China and Russia has been the key contributor to the downward revision, despite the better-than-expected performance of US liquids supply. US oil output is leading this growth with 1.62 mbd in 2019.

In 2020, non-OPEC supply is expected to see a continued slowdown in growth on the back of decreased investment and lower drilling activities in US tight oil. Non-OPEC supply is now forecast to grow by 2.17 mbd in 2020, representing a downward revision of around 0.27 mbd from initial forecasts in July 2019 on the back of downward revisions in US oil supply.

Nevertheless, incremental production from the US tight plays, particularly in the Permian Basin, as well as from offshore fields in Norway, Brazil, Australia and possibly Guyana, will contribute to the non-OPEC supply in 2020.

Evidently, significant and successful effort of countries participating in the Declaration of Cooperation (DoC) have helped the global oil market to remain relatively balanced in 2019. Going forward, countries participating in the DoC reaffirmed their continuing commitment to oil market stability as they have decided this month to adjust production further by another 0.5 mbd, adding to the previous adjustment of 1.2 mbd, and now totaling to 1.7 mbd as of January 2020. This is to stabilize the market in the interests of both consumers and producers, as well as the wellbeing of the global economy.

















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