The oil market and its hazy prospects

In early 2019, when the oil market succumbed to a correction, there was talk of a recovery in oil prices to $100 per barrel. The reason for such expectations was the restriction of oil production in OPEC and non-cartel countries. At the same time, the US expected from shale oil production that it will quickly exhaust itself. And if the US shale producers are not stifled by tough competition, they will beat profitability. But, as history has shown, shale oil production in the United States has experienced both low prices and fierce competition.

But the main enemy of the oil market, oddly enough, was not shale oil, but US foreign policy. Or rather, the US trade war, which caused a slowdown in the global economy and, as a result, a decrease in demand for oil.

By mid-2019, even the most ardent optimist cannot expect the oil market to return to the $100 per barrel mark by early 2020. And the reason for this is the general pessimism of the market associated with the continued tension around the US trade confrontation. But it is also worth highlighting a number of factors directly related to the oil market.

The decline in oil production in Iran and Venezuela did not provide adequate support

This happened on data on the reduction in oil supplies from Iran due to the aggravation of US sanctions and the reduction in oil exports from Venezuela on political risks. Thus, the total exports from these countries decreased by almost 2.2 million barrels per day. This supported oil in the first half of 2019. But none of the pessimistic forecasts expects a recovery in oil production from Iran or Venezuela.

Risks of resumption of production within OPEC +

A meeting between OPEC and non-cartel countries is scheduled for the end of June (June 25-26). The main issue of this meeting will be the continuation of the agreement on limiting oil production. And if earlier the extension of agreements on limiting production looked like a settled issue, now there are acute issues between the main participants in the deal to limit oil production by Saudi Arabia and Russia. This raised doubts about the extension of the deal or, as a result, the revision of quotas for oil production.

Officials in Saudi Arabia and Russia reject the possibility of abandoning production quotas. But doubts about the effectiveness of this solution are emerging more and more often.

Slowdown in oil demand from China

Oil demand in China began to decline with the escalation of trade relations with the United States. This was caused by a decline in production and as a consequence of the growth rate of China's GDP. Following the slowdown in the Chinese economy, the global economy also began to show a slowdown in growth. This prompted a downward revision of global forecasts for oil consumption.

According to various forecasts of large world banks, the surplus on the oil market in 2020 will range from 100 thousand barrels per day to 1 million barrels per day. This will force large oil producers to limit oil production, and the oil market expects a new decline. Moreover, the decline to the lows of 2018 looks very expected.

Johannes Röll

Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer

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