2019: Oil price rebound fears limited
After twists and turns, the world's major oil-producing countries finally reached a new production reduction agreement at the end of 2018. Stimulated by this news, international oil prices rebounded briefly, but soon returned to decline. Analysts believe that the effect of the new production reduction agreement in supporting oil prices is worrying, and international oil prices may show a low volatility trend in 2019.
In 2018, international oil prices staged an asymmetric roller coaster with October 3 as the watershed. Driven by many factors, such as the extension of the production reduction agreement reached by major oil-producing countries last year, the sharp decline in Venezuelan crude oil production, the steady rise in global crude oil demand, and the announcement by the United States to restart sanctions on Iranian crude oil exports, international oil prices showed a volatile upward trend before October, and reached a nearly four-year high on October 3.
Subsequently, due to the frequent record highs of crude oil production in the United States, Russia, and Saudi Arabia, the U.S. sanctions on Iranian crude oil exports were less than expected, coupled with intensified international trade frictions, the global economic growth slowed down, and international oil prices showed a rapid unilateral decline.
On December 31, 2018, oil prices in New York and London were down 40.6 per cent and 37.6 per cent, respectively, from October 3, and 24.8 per cent and 19.5 per cent, respectively, from the end of 2017.
Non-OPEC crude oil production to rise
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 production by 1.2 million barrels per day on the basis of crude oil production in October 2018 from January 2019, with an initial set period of 6 months. From Qatar's announcement of its withdrawal from OPEC before the agreement was reached, to the postponement of the decision to cut production, to the lower-than-expected reduction in production, this "difficult-to-produce" production reduction agreement seems to have been inadequate since its inception, and two of the details make the agreement more likely to be further discounted.
First of all, the production reduction is based on the production in October 2018, and the crude oil production of major oil producing countries in that month is at a historical high level. Second, Iran, Venezuela and Libya will not be bound by the agreement. These three countries are all major oil-producing countries, and being exempted at the same time will inevitably affect the effect of the agreement.
Ann Louis Hitl, vice president of Wood Mackenzie Consulting, predicts that the average daily demand for global crude oil in 2019 will increase by 1.1 million barrels compared with 2018. Driven by factors such as the continuous increase in shale oil production in the United States, non-OPEC oil-producing countries The daily output of crude oil will increase by 2.4 million barrels, and the reduction in production in this agreement is not enough to balance international crude oil supply and demand.
According to a report released by the US Energy Information Administration at the end of last year, the average daily production of shale oil in the United States exceeded 8 million barrels for the first time in December 2018, reaching 8.032 million barrels, and will further increase to 8.166 million barrels in January 2019.
In an interview with Xinhua News Agency reporters, Raymond Carbone, 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 been reversed, and they believe that supply will exceed demand. The sentiment dominates the market.
U.S. shale oil investment is slowing.
Paul Sankey, chief oil analyst at Mizuho, said that recently, some major institutions have been lowering their expectations for world economic growth next year, the risk of recession in some countries is rising, and the stock market fluctuates sharply. If these factors eventually 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 sharp drop in international oil prices has filled the market with bearish sentiment, the financial market is usually prone to overreact due to trend inertia when encountering major positive and negative effects. Investors should not ignore the market's self-correction ability.
The International Energy Agency recently released a report saying that in view of the stimulating effect of low oil prices on crude oil consumption, it has decided to maintain the forecast that global crude oil demand will increase by 1.4 million barrels per day in 2019.
Low oil prices may also have a dampening effect on crude oil production. Alberta, Canada's main oil-producing province, a non-production reduction agreement, said at the end of the year that in order to alleviate the oversupply situation, the province plans to reduce crude oil production by 325000 barrels per day. In addition, since late November, the actual trading price of shale oil producing areas in the United States has been lower than 45 US dollars per barrel, and shale oil investment has shown some signs of slowing down.
Regarding the trend of oil prices in 2019, Francisco Blanche, head of commodities and derivatives at Bank of America Merrill Lynch, believes that taking into account factors such as the production reduction agreement and the Fed's slowdown in interest rate hikes or the weakening of the U.S. dollar, it is expected that in 2019 New York light crude oil The average price of futures and London Brent crude oil futures will be US $59 per barrel and US $70 per barrel respectively.
Jeff Currie, head of commodity research at Goldman Sachs, believes that investors will not buy oil assets in large quantities until there are signs of fundamental changes in the fundamentals of the international crude oil market. (China Energy Network)