Oil market is expected to achieve a balance in 2019, Trend reports citing the outlook released by Arab Petroleum Investment Corp. (Apicorp).
Apicorp believes that purely based on fundamentals, a collective cut of 1.2 million barrels per day between OPEC and its allies, high probability of supply losses from Iran, Venezuela, Libya and Canada, and global oil demand growth of 1.4 million barrels per day, the market will achieve balance in 2019.
“A balanced market is consistent with a wide range of prices, and until the market starts showing signs of stock drawdowns, oil prices will continue to be under pressure. As market fundamentals re-assert themselves, the oil price will recover some of its current losses and our base case forecast is for the oil price to trade between the $60-70 per barrel range towards the second half of the year, barring a sharp slowdown in the global economy,” said the Apicorp report.
The report reads that 2018 showed quite clearly that this is a market not only driven by fundamentals, but also expectations and market sentiment.
“In the last few months of 2018, the tensions between fundamentals, sentiment and prospects about the macro environment all shaped price behavior and this will continue in 2019. OPEC’s primary challenge will be to address the physical market imbalances, and assert its credibility to consistently manage expectations and sentiment,” said the company.
The dynamics of oil prices in 2019 will also depend in large part on OPEC’s effectiveness in implementing the cuts, balancing the market and reinforcing the credibility of its signals, according to Apicorp.
“First, there is the issue of whether the agreed cut is big enough. In its December report, the IEA estimates the call on OPEC at 31.6 million barrels per day. Assuming that the cut is implemented in full, OPEC’s reduction of 0.8 million barrels per day from October level, estimated by secondary sources at around 33 million barrels per day, will keep OPEC output at about 32.2 million barrels per day, implying that stocks would continue to build at a rate of around 0.6 million barrels per day.”
Second, according to Apicorp, OPEC output may fall by more than 0.8 million barrels per day due to declines in Iran and Venezuela.
Iran’s production has already fallen by 0.8 million barrels per day between May and November and Venezuela continues to grapple with economic collapse and uncontrollable inflation, reads the report.
Last, the company believes that there are uncertainties outside OPEC+, for example the government of Alberta, Canada has announced mandatory reduction of 325,000 barrels per day starting from January, as rising crude stocks in the absence of outlets has led to the collapse of prices in Canadian grades.
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