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Oil price tumbling amid uncertainty
Easing of fears over curtailment of oil from Iran couples with OPEC view that global demand growth will soften in coming months
Alan Bailey Petroleum News
Having in early October attained levels in the mid $80s, the price per barrel of Brent crude has fallen again, dropping to just over $70 at the beginning of November. And within that overall trend, there has been price instability, in response to geopolitical developments and the related potential impacts on oil supply and demand. In the latest twist, the Organization of the Petroleum Exporting Countries’ oil market report for November has predicted that the rate of increase in global oil demand will slow in the coming months, a prediction that has put further downward pressure on the oil price.
Up and then down After climbing steadily in the spring and early summer, the oil price took a tumble, beginning around the beginning of May, with OPEC subsequently pledging to increase its production levels. The price began to climb again in mid-August, reaching a peak of around $85 in early October. One issue that appears to have driven this rise was the U.S. plan to re-impose sanctions on Iran. When that threat was softened, with some Iranian oil exports exempted from sanctions, the price dropped again, especially as Saudi Arabia and Russia maintained high production rates.
OPEC’s November oil market report says that, while global economic growth is forecast to remain at around 3.7 percent this year, the forecast for 2019 has dropped slightly to 3.5 percent. OPEC attributes the predicted slowdown to rising trade tensions, monetary tightening (especially in the United States), and rising challenges faced by developing economies. Forecast growth rates of 7.5 percent and 6.5 percent in 2019 in India and China are expected to be offset by lower growth rates elsewhere: 2.6 percent in the United States and 1.7 percent in the Eurozone, for example.
So, in parallel with that softening of economic growth, OPEC now anticipates a slight downturn in the global demand for oil.
Growing supply On the supply side of the oil market, OPEC anticipates growth at a slightly higher rate than had previously been expected. The United States, Canada, Kazakhstan and Russia are all expected to increase production for the remainder of 2018. And OPEC increased its production rate in October. In 2019, with the United States, Brazil, Canada and the United Kingdom all expected to increase oil production, non-OPEC production is expected to rise from an average of 59.86 million barrels per day in 2018 to 62.09 million barrels per day, the OPEC report says.
An OPEC graph of world oil supply and demand levels suggests that supply and demand have remained close to being in balance for much of this year. The balancing of the market has also resulted in a drawdown of oil stocks to more normal levels, following the major overhang in stocks that accompanied the oil price crash of 2014 and thereafter.
The Alaska oil industry and state oil revenues have been benefiting from this year’s buoyant oil prices. However, the major oil companies are not making assumptions about future pricing trends: Both ConocoPhillips and BP have said that their investment planning is based on relatively low oil prices, with higher prices being viewed as a bonus, should the global oil market tighten.
- ALAN BAILEY
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