BAKU, Azerbaijan, Dec.4
By Leman Zeynalova – Trend:
Crude oil prices (an average of Brent, WTI and Dubai) are forecast to weaken to $58/bbl in 2020 from $60/bbl in 2019, a substantial downward revision from $65/bbl projected in April, World Bank said in its Russia Economic Report.
“Expectations for demand in 2019 and 2020 have been revised down, reflecting the weaker outlook for global growth. For supply, while U.S. production increases have been modest in 2019 to date, they are expected to rise substantially by 2020, as new pipelines come into operation. The forecast also assumes that production cuts by OPEC and its partners will be sustained into 2020,” Trend reports citing the World Bank.
Risks to the oil price outlook are to the downside, according to the report.
“The key risk is a further slowdown in growth, implying weaker demand for oil. The sectors of the economy which have seen the sharpest slowdown, notably trade and manufacturing, play an outsize role in the consumption of oil products. On the supply side, U.S. production has scope to surprise to the upside, given the additional pipeline capacity coming onstream in the coming months,” said the World Bank.
Conversely, if producers continue to prioritize improved profitability, they may prove to be more cautious than currently expected, reads the report.
“OPEC and its partners have indicated they may discuss further production cuts at their December meeting, which would help support prices. However, a push for larger production cuts, particularly if prices remain low, could put the agreement under increasing strain — Ecuador recently announced it will leave OPEC in January 2020, as it wants to increase production to boost fiscal revenue.”
The World Bank estimates that crude oil prices fell 8 percent in the third quarter of 2019, quarter-on-quarter, following a 7-percent decline in the previous quarter.
“The weakness in prices reflects a broad-based downturn in the world economy. Indicators of global activity, including manufacturing output, trade volumes, and vehicle sales, have all deteriorated sharply this year. Expectations of demand growth have been revised down repeatedly by forecasters, and oil demand is now projected to grow just 0.9 million barrels per day (mb/d) in 2019.”
The decline in prices occurred despite a major attack on two of Saudi Arabia’s oil plants, which resulted in the largest ever conflict-driven reduction in oil production, said the report.
“The attacks led to the shutdown of 5.7 mb/d of output — around half of Saudi Arabia’s production capacity and 6 percent of the global oil production. The price of the benchmark Brent crude jumped 15 percent, from $60 to $69/bbl, in the aftermath of the attacks. However, prices returned to their pre-attack levels by the end of September, as Saudi Arabia rapidly restored lost production. In the end, production in Saudi Arabia fell by 0.7 mb/d in September, substantially less than the original reduction.”
The global outlook remains fragile in the context of elevated economic and trade policy uncertainty, with growth projected to remain unchanged in 2020, at 2.5 percent, said the World Bank.
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