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2019: Oil price rebound may be limited

2019: Oil price rebound may be limited

(Summary description)After setbacks, the world's major oil-producing nations finally reached a new production reduction agreement at the end of 2018.

2019: Oil price rebound may be limited

(Summary description)After setbacks, the world's major oil-producing nations finally reached a new production reduction agreement at the end of 2018.


  After setbacks, the world's major oil-producing nations finally reached a new production reduction agreement at the end of 2018. Stimulated by this news, the international oil price rebounded briefly, but then it relapsed. Analysts believe that the effect of the new production reduction agreement on supporting oil prices is worrying, and international oil prices may show a low-level shock in 2019.


  In 2018, the international oil price took the watershed on October 3, staged an asymmetric roller coaster market. Driven by a number of factors including the extension of the production reduction agreements reached by the major oil-producing countries last year, the sharp decline in Venezuelan crude oil production, the steady increase in global crude oil demand, and the United States' announcement of resumption of sanctions on Iranian crude oil exports, international oil prices have generally shown a volatile upward trend before October. And on October 3, hit a new high of nearly 4 years.


  Subsequently, as the output of crude oil from the United States, Russia, and Saudi Arabia frequently hit record highs, the United States' sanctions on Iranian crude oil exports fell short of expectations, coupled with the intensification of international trade frictions, the global economic growth slowed, and international oil prices showed a rapid unilateral decline.


  On December 31, 2018, in terms of closing prices, New York oil prices and London oil prices plunged 40.6% and 37.6% from October 3, respectively, and also fell 24.8% and 19.5% from the end of 2017, respectively.


  Non-OPEC crude oil production will increase


  The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producing countries reached an agreement on December 7 last year, deciding to reduce daily output by 1.2 million barrels per day on the basis of crude oil production in October 2018 starting from January 2019. For 6 months. From the announcement of Qatar's withdrawal from OPEC before the agreement was reached, to the postponement of the decision to reduce production, to the less-than-expected production reduction, this "difficult" production reduction agreement seems to have been inadequate since its inception, and two of the details make the agreement more Suspected to be further discounted.


  First of all, the reduction is based on the output of October 2018, while the crude oil output of the major oil-producing countries was at a historically high level. Secondly, Iran, Venezuela and Libya will not be bound by the production cut agreement. All three countries are big oil producers, and being exempted will inevitably affect the effectiveness of the agreement.


  Ann-Louis Hitler, vice president of Wood Mackenzie Consulting, predicts that the average daily global demand for crude oil in 2019 will increase by 1.1 million barrels compared to 2018, driven by factors such as the continued rise in US shale oil production and non-OPEC production. The crude oil output of oil nations will increase by 2.4 million barrels per day. The reduction in output under this agreement is not enough to balance international crude oil supply and demand.


  The US Energy Information Administration released a report at the end of last year predicting that the average daily output of shale oil in the United States exceeded 8 million barrels for the first time in December 2018, reaching 8.032 million barrels. In January 2019, it will further increase to 8.166 million barrels.


  In an interview with Xinhua News Agency, Raymond Calbone, president of U.S. Supreme Choice, said that in the context of the continuous rise in U.S. crude oil production, investors' overall expectations of international crude oil supply and demand have reversed, and believe that supply will exceed demand. Emotions dominate the market.


  U.S. shale oil investment shows signs of slowing


  Paul Sankey, chief oil analyst at Mizuho, ​​said that recently, some major institutions have continuously lowered their expectations for world economic growth next year, the risk of economic recession in some countries is rising, and stock markets are volatile. If in the end these factors work together to cause a decline in global crude oil demand next year, then the production reduction agreement will be meaningless.


However, some analysts believe that although the recent international oil price decline has made the market bearish, but financial markets are often prone to overreaction due to trend inertia when they encounter major positives and negatives. Investors should not ignore the market's ability to correct itself.


  The International Energy Agency recently released a report saying that given the stimulus effect of low oil prices on crude oil consumption will offset the suppression of demand by the economic slowdown, it was decided to maintain the forecast that the global average daily demand for crude oil will increase by 1.4 million barrels in 2019.


  Low oil prices may also have an inhibitory effect on crude oil production. Alberta, Canada ’s main oil-producing province, a non-reduction agreement country, said late last year that the province plans to reduce daily crude oil production by 325,000 barrels in order to ease oversupply. In addition, since late November, the actual transaction price of US shale oil producing areas has been lower than 45 US dollars per barrel, and shale oil investment has shown some signs of slowing down.


  Regarding the oil price trend in 2019, Bank of America Merrill Lynch's head of commodities and derivatives Francisco Blanche believes that considering a combination of factors such as the production cut agreement and the Federal Reserve's slowing pace of rate hikes or weakening the US dollar, it is expected that light crude oil in New York in 2019 Futures and London Brent crude oil futures will average US $ 59 per barrel and US $ 70 per barrel, respectively.


Jeff Currie, head of commodities research at Goldman Sachs, believes that investors will not buy oil assets aggressively until there are signs of fundamental changes in the fundamentals of the international crude oil market. (China Energy Network)

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