Two steps may lead to deficit in oil market

Oil&Gas Materials 17 April 2019 16:14 (UTC +04:00)

Baku, Azerbaijan, April 17

By Leman Zeynalova – Trend:

The price of oil has risen by nearly a third since the start of 2019 on the back of lower output and heightened geopolitical risks, Trend reports citing Capital Economics, UK-based consulting company.

The drop in supply has more than offset concerns about demand stemming from weak economic data, according to the company.

“We still expect softer GDP growth this year to lead to slower growth in oil consumption. Indeed, our demand forecasts suggest that the market will return to surplus in the second half of this year. Supply should also pick up later in 2019 as US oil output continues to expand and some OPEC oil returns to the market (either because the output cuts finish or compliance starts to slip),” reads a report from Capital Economics.

The UK-based company believes this combination points to markedly lower prices.

“We forecast that the price of oil will fall to $50 by end-2019, but this should be the trough. We think that monetary loosening in the US and a return of investor risk appetite will prompt a recovery in the oil price to $60 by end-2020,” said the report.

“There are two key risks to our forecast. First, the US may not extend its waivers from sanctions on Iran in early May. All the rhetoric from the White House suggests this is a possibility, but President Trump will be mindful that such a move would lead to further falls in Iranian production and higher prices. Second, OPEC may decide to extend its output cuts beyond June. Were these to happen, the market could dip into deficit and prices would stay high for longer.”

The slower growth the Capital Economics anticipates in China should weigh particularly heavily on the prices of industrial metals this year.

“Admittedly, manufacturing surveys painted a more upbeat picture for March but we think the ongoing policy stimulus will only stabilize growth rather than provide a sustained boost.”


Follow the author on Twitter: @Lyaman_Zeyn