Energize Weekly, December 19, 2018
Oil prices are projected to decline sharply in 2019 as demand remains flat due to slowing economies and weakening currencies—as well as more U.S. oil in the market, according to national and international energy agencies.
The federal Energy Information Administration (EIA) last week slashed its projected price for Brent crude in 2019 by 15 percent to $64 a barrel. It also revised downward by 16 percent its 2019 price for West Texas Intermediate (WTI) crude to $54 a barrel.
On Dec. 7, the Organization of the Petroleum Exporting Countries (OPEC) agreed to a 1.2 million barrel a day reduction to deal with softening demand, rising inventories and lower prices.
“The cuts were in response to increasing evidence that oil markets could become oversupplied in 2019,” the EIA said. “This potential oversupply was reflected in recent price declines.”
In November, Brent crude spot prices averaged $65 a barrel, down $16 a barrel from October, the largest monthly average price decline since December 2004.
The EIA said it expects the recent price declines and production cuts will bring 2019 supply and demand “largely into balance,” leaving prices near current levels.
The International Energy Agency (IEA), however, painted a picture of continuing pressure on oil prices in its December oil market report.
The IEA said oil demand for 2018 was 1.3 million barrels a day, rising to just 1.4 million barrels a day in 2019 as the “impact of lower prices is offset by lower economic growth assumptions—particularly in developing economies, weakening currencies and downward revisions for certain countries,” such as Venezuela.
The total global liquid fuels demand for 2019 was forecast at 1.5 million barrels a day by the EIA, with growth largely coming from China, the United States and India.
The OPEC meeting in Vienna, the IEA said, clearly showed that Russia, Saudi Arabia and the United States, whose total liquids production is now 40 percent of the global total, are dominant players.
The OPEC agreement to cut production is based on Saudi Arabia-Russian cooperation. The two countries have large capacity, enabling them to swing output one way or the other,” the agency said. “For them falling prices would place their budgets under great stress.”
“While the U.S. was not present in Vienna, nobody could ignore its growing influence,” the IEA said. The U.S. has emerged as the world’s biggest crude oil producer. The IEA noted that while production is controlled by the Saudi and Russian governments, in the U.S., production is managed by individual companies based on economics.
“The United States is also the world’s biggest consumer and lower prices are welcome, although its producers will want to see them stay high enough to encourage further investment,” the IEA said.
“Time will tell how effective the new production agreement will be in re-balancing the oil market,” the IEA said. “The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case.”
