Boom, bust or both? The challenge of predicting 2019's oil market balance
LONDON (Reuters) - In the oil market, balance is a difficult game. Calculating whether the 100 million barrel per day world market is likely in the months ahead to have a surplus or deficit of supply, or be balanced, where supply equals demand, is never simple.
Projections must take into account a host of factors — from world economic growth, refinery operations and changing fuel use patterns on the demand side, to investment patterns, rates of mature oilfield decline, weather, politics, war and OPEC on the supply side.
Working out what the oil balance will look like next year is proving particularly difficult.
“The oil market is basically hardly ever in balance,” said strategist Bjarne Schieldrop of Swedish bank SEB.
“It is either too much or too little. It is very hard to balance it just right. That means that the oil market naturally will move between the two extremes
“And since 2005 the middle ground between these two seems to be the $80–
At $83 a barrel, crude now is at its highest for four years and some big trading houses now think $100-a-barrel crude is likely, a price which may trigger some rationing of demand.
An increase in the value of the U.S. dollar in line with rising U.S. interest rates has made oil more costly for emerging market fuel buyers, including India, China
Even so, an average of the three main public agencies that project world oil demand growth — the International Energy Agency, the U.S. Energy Administration and OPEC — is signaling another year of oil demand growth next year.
The average of the three agencies’ forecasts is
The three on average expect non-OPEC crude supply — they do not even try to predict what OPEC will do — to outstrip global demand next year by 580,000
KNOWN UNKNOWNS
On the supply side, Iran is the big unknown. Predictions for how much of Iran’s 2 million
There are two quick sources of extra output: the tapping of spare capacity held largely by OPEC leader Saudi Arabia or from those producers that can respond rapidly to higher prices, namely the shale industry in the United States.
Two high-profile consultancies are taking a very different view of the supply-demand balance next year than the three main agencies.
Washington-based Rapidan Group expects a supply surplus of more than one million
“We forecast well over 1 million
“Barring big geopolitical disruptions, we’re hearing an echo of 2013 and 2014 when a tidal wave of prospective non-OPEC supply growth compelled OPEC and Russia to either surrender market share with large proactive cuts or accept big price declines.”
Rapidan expects U.S. crude supply alone to grow faster than total global consumption.
At the other extreme, London-based Energy Aspects is projecting a shortfall in supply of 300,000
In a note titled “
That, trading houses such as Mercuria and Trafigura think, may be enough to drive oil prices to $100 a barrel — perhaps
So boom, then bust? The history of oil price cycles indicates that is not impossible.
Editing by Richard Mably and David Evans
Comments