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Oversupply, faltering growth to weigh on oil prices

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BENGALURU — Crude oil prices look likely to trade below $70 per barrel in 2019 as surplus production — much of it from the United States — and slowing economic growth undermine OPEC-led efforts to shore up the market, according to results of a Reuters poll released earlier this week.

A survey of 32 economists and analysts forecasts the North Sea Brent crude oil benchmark will average $69.13 per barrel in 2019, more than $5 lower than last month’s projection. Brent averaged $71.76 in 2018.

“The first half of 2019 will be dominated by concerns about oversupply,” said Ashley Petersen of Stratas Advisors.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, known collectively as OPEC+, agreed early last month to cut production by 1.2 million barrels per day (bpd) to try to drain global crude inventories and support prices.

But the cuts took place just this month and prices had fallen more than 15% since the announcement.

“The market had largely priced in renewed production cuts from OPEC. As a result, we expect prices to sink if OPEC or Russia diverge from their production quotas notably,” said Cailin Birch, analyst at the Economist Intelligence Unit. “We expect the cuts to be renewed in April, when the deal comes up for review, as higher output from the US and weakening global demand require continued restraint.”

Oil prices have fallen more than 40% from multi-year highs reached in early October on concerns about the impact of the US-China trade spat on global economic growth and demand for oil.

Another potential headwind this year is slowing consumption. Many analysts project demand growth of a little over 1 million bpd in 2019, compared with an increase of 1.54 million bpd in 2018, according to the US Energy Information Administration.

US shale oil output growth is expected to remain robust, adding to supply. The United States last year surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with US output climbing to a record 11.7 million bpd.

“We expect US (companies) will increase shale oil production continuously over the next year,” CaixaBank Research economist Adrià Morron Salmeron said.

The Reuters poll forecast US light crude price would average $61.05 per barrel in 2019, versus $67.45 projected in the previous poll. It averaged $64.98 last year.

Moreover, analysts believe the end of US sanctions waivers on Iran’s oil exports will put extra pressure on oil prices. — Reuters