Crude oil prices are pushing for stable weekly growth, as financial markets have been backed by hopes of a recent US-China trade deal, while OPEC+ has started to shrink supply.
However, the markets are closely following the situation, mainly fearing a slowdown in the global economy in 2019.
The futures on US crude oil WTI rose slightly by 0.05 USD, or 0.1%, to 52.64 USD per barrel, but Brent dropped by a minimum of 0.02 USD, or 0.03%, to 61.66 USD per barrel.
Both WTI and Brent are set to mark a second consecutive week of growth, raising their prices by 8% and 10% respectively.
The markets were backed by the hopes that the trade war between Washington and Beijing could be resolved soon after delegates said the three-day talks this week were constructive and more talks are due this month.
Lower oil exports from Iran in November, when US sanctions resumed, also positively affected the market.
However, concerns about the health of the global economy are getting worse, and the signs that China’s growth in 2018 and 2019 will be the lowest since 1990 are on the rise.
However, concerns about the health of the global economy are getting worse, and the signs that China’s growth in 2018 and 2019 will be the lowest since 1990 are on the rise. If we go through a slowdown in the economy, crude oil will be weaker because of lowering the global demand, which will result in oversaturation of the market, even despite the production cuts.
Most analysts have lowered global economic growth forecasts below 3% in 2019, and some have even expressed concerns about an impending recession.
From the point of view of supply, the oil markets receive support from a reduction in oil extraction by the Organization of Petroleum Exporting Countries (OPEC), which seeks to limit the surplus that occurred in the second half of 2019.
The United States is the key cause of oversupply, as crude oil production has risen by more than 2 million barrels per day in 2018 to a record 11.7 million barrels per day, according to the latest data of the Energy Information Administration. And this also leads to an increase in fuel stocks. Gasoline stockpiles rose by 8.1 million barrels to 248.1 million barrels, the highest weekly rise since December 2016. The inventories of distillates increased by 10.6 million barrels to 140.04 million barrels.
Although crude oil reserves declined by 1.7 million barrels to 439.74 million barrels, they remained above their average five-year seasonally adjusted value of 435 million barrels.
Crude oil price forecast
Meanwhile, the US bank Morgan Stanley cut its forecast for the 2019 oil price by more than 10%, pointing to “weaker expectations of global economic growth” and rising oil supplies, mostly from the US.
Morgan Stanley has already billed an average Brent price of 61 USD per barrel at a previous estimate of 69 USD per barrel this year. The updated WTI forecast for 2019 is for an average price of 54 USD per barrel at a previous forecast of 60 USD per barrel.
Meanwhile, Deutsche Bank set a price forecast for WTI oil of 60 USD per barrel. According to the German bank, the price rises since June 2017, which took WTI up to 76 USD per barrel, were followed by a steep decline in October and November to around the 52 USD per barrel level and then a further leg-down in December. This decline was interpreted as a sign of weakness in the global economy, fueling investors’ fears of an end to the multi-year bull market in equities.
On the demand side, Deutsche Bank sees very limited risk of a recession over the next 12 months and analyzes that Chinese demand is likely to remain resilient to rather slower Chinese GDP growth. Overall, global demand for oil could increase by around 1.4 million barrels per day. On the supply side, Deutsche Bank expects an OPEC production cap to be maintained into 2019.