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Reasons why oil consumption to plunge next year

Oil&Gas Materials 24 May 2018 17:01 (UTC +04:00)

Baku, Azerbaijan, May 24

By Leman Zeynalova – Trend:

Oil consumption is likely to drop in 2019 if the crude prices remain as high as at the present, the UK-based Capital Economics said in its analysis obtained by Trend.

Oil prices surged as the market continued to digest the re-imposition of the nuclear-related sanctions on Iran’s economy and oil exports which had been waived, said the analysts.

“The focus in energy markets will remain on the fall-out from the re-imposition of US sanctions. Oil prices are likely to remain well supported as long as the uncertainty remains over the full impact of the sanctions,” said the report.

However, provided the impact of the US sanctions turns out to be small, Saudi Arabia, Algeria and Angola would be able to increase output without breaching their quotas, according to Capital Economics.

Meanwhile, the analysts pointed out that the surge in oil prices since the start of the year has raised concerns about demand destruction.

“We expect oil consumption to remain strong this year on the back of fast global economic growth, but if oil prices remain around current high levels, usage would probably plunge in 2019. Indeed, it seems that when oil prices trade above $80 per barrel for a prolonged period of time, oil demand growth in the US at least, tends to slow sharply,” said the report.

Capital Economics expect Brent oil prices to stand at $72 per barrel in the second quarter of 2018 and drop to $67 per barrel in the third quarter of the year.

US President Donald Trump announced on May 8 that Washington was walking away from the nuclear agreement, which was reached between Iran and the five permanent members of the UN Security Council - the US, Britain, France, Russia and China - plus Germany.

Trump also said he would reinstate US nuclear sanctions on Iran and impose "the highest level" of economic bans on the Islamic Republic.

Follow the author on Twitter: @Lyaman_Zeyn

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