Oil Prices Won’t Collapse In 2019
Oil prices will continue to be under pressure in 2019, but they won’t collapse, as was the case back in 2016. The world’s major suppliers, Russia, Saudi Arabia, and China will continue to pump more oil into the market, as a slow-down in the global economy will taper demand.
“Oil sell-offs are usually due to one of two reasons: changes in expectations regarding global growth and developments in the oil industry,” says Rodrigo Zeidan, Associate Professor of Practice of Business and Finance at New York University Shanghai. “This particular sell-off has more to do with the oil industry than the fear of a global slowdown or recession. Oil supply in the US continues to increase while OPEC members cannot agree on production cuts.”
Haris Anwar, Senior Analyst at Investing.com, blames the “machines” for the sell-off. “Rather than saying that inmates are running the asylum, I think it’s more appropriate to say that machines are running the oil market,” explains Anwar. “And that’s pulverizing oil, with the few remaining bulls in the market unable to make any sense of what’s going on, particularly when you have U.S. stockpile draws and Libyan force majeure. The narrative remains on the glut and the combination of record U.S., Saudi and Russian production.”
Russia, Saudi Arabia, and the US are the “triumvirate” of the oil market, according to Zeidan. “Russia, Saudi Arabia and the US form an uneasy triumvirate of the global oil market. Russia and Saudi Arabia are constrained in their capacity to cut production right now,” he explains. “In the case of the Saudis, production cuts have been postponed because of the still uncertain Saudi Aramco IPO and some political turmoil at home, and for the Russians, because of the role of oil and gas in balancing the government’s budget.”
American frackers have their own constraints, too. They must pump oil as fast as they can to cope with debt in the face of rising interest rates. “American fracking has made an unexpected comeback in the second half of 2018,” adds Zeidan. “The heavily-indebted industry was left shaken by low oil-prices in the past two years but responded quickly, and a bit unexpectedly, to the surge in prices before the recent sell-off.”
The eagerness of major oil suppliers to put more oil in the market comes at a time when higher interest rates, a strong dollar, high levels of household and corporate debt, and trade frictions are expected to slow down global growth and oil demand. “The interest rate hikes in the USA and the end of QE in EU will put a brake to growth in the world’s two largest economic regions,” says shipping expert and a member of the Greek Chambers of Commerce, Theophanis Matsopoulos. “China is facing its own growth issues, as evidenced by recent manufacturing activity data.”
Slower economic growth will keep up the downward pressure for oil prices in 2019.
Still, Matsopoulos doesn’t see oil prices collapsing in 2019, as was the case back in 2016. Instead, he sees a price in the range of $51-53 per barrel. Kosmas Megoloeconomou, an Athens-based forecaster sees a broader range of $46-55–Table 1.
Oil Forecast for 2019 By Month And Seasonal Pattern
|By Way Of|
|YEAR||MONTH||The Seasonal Model||PATTERN|
While, it’s unclear which forecast will come true, one thing is clear: volatility will continue in the oil market.