Baku, Azerbaijan, April 29
By Leman Zeynalova – Trend:
Crude oil prices are expected to moderate a little from their current levels and average $66/bbl in 2019, and $65/bbl in 2020, Trend reports with reference to the World Bank’s Commodity Markets Outlook.
The WB said this is a downward revision from the previous forecast and reflects weaker-than-expected global growth and a much larger increase in U.S. production than anticipated in 2018.
“The forecast assumes that: oil demand growth slows slightly in line with weaker global growth this year; U.S. shale production increases robustly in 2019 albeit at a slower pace than 2018, before slowing in 2020; and growth in other non-OPEC countries rises modestly,” reads the report.
Risks to the outlook relate primarily to policy decisions, but are broadly offsetting, according to WB.
“The United States’ decision on April 22 to terminate waivers to its sanctions on Iran could put upward pressure on oil prices. However, the impact of this decision remains uncertain, for two reasons. First, it is not clear how quickly countries will comply with the removal of waivers. Second, countries could choose to ignore the sanctions—for example, over the past three months some countries have been importing more oil from Iran than allowed under the existing waivers. As such, the full impact of the sanctions on the oil market could be smaller than if all Iranian oil exports stopped when the waivers expire on May 2. Iran currently exports around 1.4 mb/d of crude oil and condensates, around 1.4 percent of global supply,” said the report.
WB believes it is possible that major oil-producing countries, notably Saudi Arabia and the United Arab Emirates, could increase production to compensate for any shortfall resulting from the termination of waivers.
“OPEC currently has around 3.5 mb/d of spare capacity, with Saudi Arabia accounting for approximately one-half of this. However, it is unclear how rapidly these countries will be willing to respond to a reduction in Iranian exports. Any change in their production will have implications for the future of the production agreement between OPEC and its partners—the group is due to meet in June to discuss whether to extend the cuts,” said the report.
Other geopolitical risks also remain elevated, including conflict-related disruptions in Libya, and further deterioration in Venezuela, according to WB.
“In addition, legislation under consideration in the U.S. congress—the “No Oil Producing and Exporting Cartels Act” or NOPEC—would allow antitrust cases to be brought against countries making it possible to sue OPEC for collectively reducing output.”
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