Oil’s problem of plenty in Opec’s forecast for 2020
Has Opec’s forecast changed from earlier?
Oil cartel Organization of the Petroleum Exporting Countries (Opec) on Wednesday said next year’s oil demand would be outpaced by strong growth in supplies from rival producers such as the US. Opec said worldwide demand would increase by 1.08 million barrels per day (mbpd) year-on-year, 60,000bpd less than previously estimated. Demand for Opec crude in 2019 and 2020 is now seen at 30.6 mbpd and 29.4 mbpd, respectively. Opec’s August report had forecast oil demand to grow by 1.1 mbpd, which was lower by 0.04 mbpd from the July prediction. A key determinant of crude prices would be severity of winters in the US and Europe and inventory levels in the former.
Why has Opec further lowered its outlook?
The downward revision in demand forecast comes amid a protracted US-China trade war and Brexit. A slowdown in the global economy hasn’t helped matters. In July, the International Monetary Fund (IMF) forecast the world economy to grow 3.2% this year, lower than 3.5% estimated at the beginning of 2019. Though IMF projected a rebound to 3.5% growth in 2020, it warned that such a recovery was “precarious”. Latest signs indicate a small pullback in the aggressive posturing US and China have taken against each other, but there have been enough flip-flops recently to offer any confidence that a truce is around the corner.
What is Opec’s forecast about India’s oil demand?
Opec projects India’s oil demand to rise 3.21% this year from 4.73mbpd in 2018. It is seen rising another 3.36% in 2020. Both figures outpace those of China, the largest oil consumer after the US.
What is causing the glut in crude oil?
Opec+ has since 1 January implemented a deal to cut output by 1.2mbpd until March 2020. US shale supply has been the elephant in the room for some years. The only option before Opec has been its members cutting production from their wells. Even there, partners such as Saudi Arabia and Iran are warring. From being a net importer, US is now an exporter of crude due to newer technologies, reducing the cost of producing every barrel of oil. That has kept crude prices hovering around $60 a barrel barring occasional spurts.
Which way are crude oil prices headed?
Predictions about prices of commodities like oil, which has global demand and supplies, are difficult to make. In 2008, a Goldman Sachs analyst forecast crude to hit $200 a barrel by 2010. The world is increasingly turning to renewables, with India, the world’s third-largest oil consumer, taking the lead. The US continues to pump more oil. Major oil producers Iran and Venezuela are off the market due to US sanctions. With the US showing no signs of easing curbs on Iran, the outlook for crude prices is not optimistic.