According to today’s oil price report, OPEC believes that the oil demand outlook is “somewhat pessimistic” for the next time in 2019, although in the short term, supply is still tight.
In the latest report, OPEC only slightly lowered its forecast for global oil demand to 1.1 million barrels a day in 2019. This estimate may ultimately be too optimistic. OPEC said the forecast was “subject to downside risks arising from uncertainties in global economic development”.
It is noteworthy that OPEC said that global oil production could grow by 19.7 billion barrels a day this year, far exceeding demand growth. However, production growth in the United States, Brazil, Thailand and Norway was lower than expected, reducing the figure by 72,000 barrels per day compared with previous estimates.
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OPEC said another worrying sign was that oil inventories in OECD member countries increased by 31.8 million barrels in June from last month, above the five-year average to 67 million barrels. In other words, just as OPEC + convened a meeting to extend the cut-off period for another nine months, inventories were rising, suggesting that the market was oversupply.
There is a slightly optimistic news for OPEC, which has increased daily crude oil demand by 100,000 barrels in 2019 and 2020. However, OPEC said demand for its oil would drop from 30.7 million barrels a day this year to 29.4 million barrels a day in 2020.
Based on these figures, if no further action is taken, OPEC will face a serious oversupply next year. The organization either risked another downturn in the market by sticking to current production levels or further cutting production.
What happened next was largely out of OPEC’s control. Recent fluctuations in oil prices are almost entirely the result of changes in people’s perceptions of the global economy. Commerzbank said in a report on Friday: “The oil market continues to fluctuate and oil prices remain volatile. After Wednesday’s sharp fall, Brent crude oil (Thursday) suffered another heavy blow, falling more than 3% in a few hours. At present, oil prices are still subject to global economic expectations and are in the midst of economic worries and hopes that trade disputes may soon end.
Retail sales data released on Friday in the United States eased some pessimism, but the global situation remained worrying, with data released around the world continuing to point in a negative direction. Just last week, the U.S. Treasury yield curve reversed, Argentina’s stock market and currency collapsed, oil prices fluctuated, and there was widespread concern about a global recession.
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Although most recent data are healthy, the United States is not immune. For example, in recent weeks, Wall Street analysts have sharply lowered their expectations for third-quarter earnings. “In April and early May, almost everyone felt that the economy would be better in the first half of this year and that international trade tensions would be resolved, at least not escalated,” Mark Costa, CEO of Eastman Chemical, said at a conference call on earnings last month. Now we are in a completely different situation. I don’t think there are many signs of economic recovery in the second half of the year.
Ultimately, the United States will find it hard to escape the effects of the global economic slowdown. The World Trade Organization (WTO) painted a bleak picture for the third quarter, saying that trade volume “may continue to be weak”. The global auto industry has also been hit hard this year, with auto sales in India and Germany shrinking sharply. The U.S. auto industry is also beginning to show some signs of tension.
The problem with oil prices is that with supply growth outpacing demand, the outlook for 2020 is already quite pessimistic – that’s the basic picture. But the likelihood of a recession continues to grow, which could worsen the oversupply.
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