Opec could roll over its regime of production cuts until the end of 2020 as demand from the top oil-consuming countries such as the US, China and India continues to slow, said a report from Jadwa Investment in Riyadh.
“Partly as a result of global trade tensions, Opec now expects to see oil demand growth from US, China [and India] declining on a yearly basis in 2020,” the report said.
“Whereas in 2019, the above three countries’ contribution to yearly demand growth is expected to make up 67 per cent of the total, this will decline to 56 per cent in 2020.”
Jadwa Investment's report, quoting data from Energy Information Administration, also said US oil production will rise to 13 million barrels per day (bpd) early next year from the 12 million bpd level reached recently, adding to the downward pressure on oil prices.
“Based on current Opec demand and non-Opec supply forecasts to 2020, it is likely that another roll-over in output will be required until the end of next year, and that the level of agreed output may need to be even lower than prevailing levels,” the report said.
The fourteen-member Opec bloc and its allies, including Russia, are cutting output by 1.2 million barrels per day to rebalance oil markets and raise prices.
The agreement, which would have expired in June, was extended until March 2020 at a meeting of Opec and non-Opec members in Vienna early this month.
On the outlook for oil prices, Jadwa Investment said Brent oil prices will average $66 per barrel this year and $68 per barrel in 2020.
“Despite rising regional geopolitical tensions, the main factor currently weighing on oil prices remains global trade-related issues and, more broadly, how such issues are clouding the outlook of the global economy,” the report said.
Market sentiment remains bearish over the impact of trade dispute on the global economy, the threat of which was underlined by the recent World Economic Outlook report by the International Monetary Fund (IMF).
In the July update, the IMF trimmed global economic growth by 10 basis points for both 2019 and 2020, to 3.2 and 3.5 per cent respectively, citing further trade tensions as the main risks to global growth.
Global benchmark Brent crude was trading at $63.27 per barrel at 4.45pm UAE time on Monday, while West Texas Intermediate crude was at $56.22 per barrel.
Although Brent oil prices averaged $70 per barrel in the second quarter of 2019, up 11 per cent on the first quarter, prices have followed a downward trajectory since April.
