OPEC Beats Bearish On Oil
OPEC sees a "somewhat bearish" outlook for the remainder of 2019, even when supplies remain tight in the short term.
In its latest report, OPEC downgraded its forecast for global oil demand only, lowering it to 1.10 million barrels per day (mb / d) for 2019, down just below 0.04 mb / d from a month earlier. This estimate may end up being overly optimistic, and OPEC itself said that the forecast is "subject to downside risk due to uncertainty regarding global economic development."
OPEC specifically said that global supply could grow by 1.97 mb / d this year, surpassing demand growth significantly. This figure is still down by 72,000 bpd from an earlier estimate, due to lower growth than expected production growth in the US, Brazil, Thailand and Norway.
In another worrying sign of a brew surplus surplus, OPEC said oil stocks in OECD countries rose 31[ads1].8 million barrels in June from a month earlier, rising to 67 million barrels above the five-year average. In other words, just as OPEC + met to prolong the production decline for a further 9 months, inventories increased, indicating an oversupply market.
On a slightly positive note (for OPEC), the group revised up the demand for crude oil by 0.1 mb / d for both 2019 and 2020. Still, it said that oil demand, often referred to as "the OPEC call," would fall to 29.4 mb / d in 2020, down from 30.7 mb / d in years.
Based on these figures, OPEC + is staring down on a serious security of supply next year without further action. The group can either keep to the current level of production and risk another decline in the market, or it can swallow further production decline. Related: Major setback for EVs could delay Peak Oil Demand
What happens next is largely outside OPEC's hands. Recent price movements are almost exclusively the result of changing sentiments regarding the world economy. “The yo-yoing in the oil market continues, and the oil price is still strongly exposed to fluctuations. After skidding massively on Wednesday, Brent was hit hard again [Thursday] and shot over 3% in hours, ”Commerzbank said in a note Friday. "The oil price has so far given up on the expectations of the world economy, and is thus caught between economic concerns and hopes that the trade conflict can end soon."
U.S. Retail eased some concerns on Friday, but the global backdrop remains worrying, and a steady release of data from around the world continues to point in the negative direction. Just this past week there was the reverse yield curve for US Treasuries, a stock market and currency meltdown in Argentina, volatile oil prices and great fears of a global economic downturn. Related: Can renewable natural gas actually compete with diesel?
Even the United States is not immune, despite mostly healthy data up until recently. For example, Wall Street analysts have lowered their third-quarter business earnings outlook in recent weeks. "Everyone in April and through the beginning of May thought the economy was going to improve during the back half, the trade war was going to kind of settle, certainly not escalate," said Eastman Chemical Chief Executive Mark Costa on a revenue call last month, which WSJ reported. "And now we're just in a very different world where I don't think that's true … There aren't many signs of financial improvement coming in the second half."
Finally, the United States will fight to overtake a global calm. The World Trade Organization (WTO) painted a gloomy picture for the third quarter, saying that trading volumes "are likely to remain weak." The global car sector has been hit hard this year, with a sharp contraction in China, India and Germany. The US auto industry is also beginning to show some signs of stress.
The problem for oil prices is that the outlook for 2020 is already quite bearish and demand from supply growth is surpassing. That's the basic thing right now. But the odds of economic recession continue to grow, threatening to make supply overhangs so much worse.
By Nick Cunningham of Oilprice.com
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