Global economic growth slowed in 2019, impacting the oil market. Trade disputes led to a reduction of final consumption and caused investment growth to decelerate.
On a positive note, the deceleration of global trade has probably bottomed out. Therefore, analysts are expecting the negative trend seen in industrial production in 2019 to reverse in 2020. As a result, economic growth is estimated to stand at 3.0% in 2019 and 2020, according to the 2020 Outlook published by the OPEC.
Demand for OPEC crude in 2020 remained unchanged from the previous report to stand at 29.6 mb/d, which is around 1.1 mb/d lower than the 2019 level. pic.twitter.com/GPbVFh5epT
— OPEC (@OPECSecretariat) December 21, 2019
Trade agreements on the horizon
Recent progress made with regard to several trade deals, such as the conclusion of the Regional Comprehensive Economic Partnership (RCEP) in the Asia-Pacific region, could provide the base to reinvigorating global commerce; although there are still challenges, in particular regarding ongoing discussions between the U.S. and its trade partners, especially China.
While global monetary policies continue to be accommodative, high debt levels in many large economies represent a certain risk. Fiscal issues pose additional challenges for some EU members, the Brexit, and the ongoing slowdown in Japan. Fiscal imbalances in emerging and developing economies may also have a negative effect on global economic growth, while recent social unrest in some economies could add further downward pressure.
Growth of the oil demand
The OPEC estimates that the global demand is expected to stand at 0.98 million barrels per day in 2019. This slight growth is mainly due to cooling macro-economic indicators in major economies.
In the case of OECD countries, oil demand is estimated to grow by a marginal 0.02 million barrels in 2019, stemming from a slower-than-expected demand in the Americas and Asia-Pacific.
However, weaker-than-expected diesel requirements in the US amid the slower pace in manufacturing and construction activity have limited demand growth in 2019.
In Asia-Pacific, significant changes in petrochemical plants reduced demand for petrochemical feedstock, especially during 1S.
In 2020, global oil demand is expected to grow by 1.08 million bpd, with the OECD rising by 0.07 million bpd.
— OPEC (@OPECSecretariat) December 19, 2019
As to the supply, non-OPEC oil supply growth in 2019 has been lower than initial market expectations; now standing at 1.82 mb/d compared to the initial projection of 2.10 mb/d in July 2018.
In 2020, non-OPEC supply is expected to see a continued slowdown in growth on the back of decreased investment and lower drilling activities in US tight oil.
Non-OPEC supply is now forecast to grow by 2.17 mb/d in 2020, representing a downward revision of around 0.27 mb/d from initial forecasts in July 2019 on the back of downward revisions in US oil supply.
According to OPEC data, the effort from countries participating in the Declaration of Cooperation (DoC) “has helped the oil market to remain relatively stable in 2019.”
This group of nations of formed by the members of the organization and some independent producers led by Russia. This alliance is known as OPEC+.
Going forward, countries participating in the DoC reaffirmed their continuing commitment to oil market stability as they have decided this month to adjust production further by another 500 tb/d, adding to the previous adjustment of 1.2 mb/d, and now totalling to 1.7 mb/d as of January 2020.
“This is to stabilize the market in the interests of both consumers and producers, as well as the wellbeing of the global economy,” the OPEC said.
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