Oil Market Is Expected To Fully Recover Next Year? Will The Global Economy Shrink Or Help Oil Prices Turn Over?

The international trade situation has improved, and international oil prices have risen slightly. However, oil demand is weak and oversupply still limits oil prices. Earlier, the International Energy Agency (IEA), the United States Energy Information Administration (EIA) and OPEC predicted that the oil market in 2020 would be overcapacity. Nevertheless, there is still a pledge by crude traders that the oil market will be significantly tighter.

Crude oil inventories will drop next year?

IEA, EIA and OPEC predict that next year's oil supply in non OPEC countries will increase by 1 million barrels per day, exceeding the global oil consumption. The daily output of non OPEC countries will increase by 2 million 200 thousand to 2 million 400 thousand barrels, while consumption will increase by only 1 million 100 thousand to 1 million 400 thousand barrels. If these forecasts are correct, the result will be a substantial increase in crude oil and refined oil storage, unless OPEC and its allies further reduce their output.

Since the beginning of 2015, with the recovery of crude oil market from 2014 and 2015, Brent crude oil futures have gradually shifted to spot premium.

But the current spot premium is unusual. The previous spot premium on a similar scale has been temporary for a long time, which is related to the sudden disruption of oil supply. In 2019, attacks on Saudi Arabia's oil facilities or the tightening of US sanctions against Venezuela and Iran in 2018 caused a huge spot premium.

However, the current spot premium has nothing to do with the sudden drop in oil supply. On the contrary, it reflects the combination of steady supply and the demand for faster growth in 2020: US sanctions continue to restrict exports from Iran and Venezuela. Lower prices are expected to slow the growth of shale gas in the United States. OPEC+ is likely to extend the current production limit to next year.

Global growth or recession

Over the past 20 years, oil consumption has grown at an average annual rate of 1.5%, which is equivalent to an increase of 1 million 500 thousand barrels per year. If the growth of oil consumption returns to the long-term trend next year, compared with the forecast of the current main bodies, the oil daily consumption may increase by 150 thousand to 300 thousand barrels. If oil consumption rebounded 2.1% as strongly as in 1999, then the oil daily usage will increase by 700 thousand barrels to 1 million barrels compared with the main forecast. Therefore, the cyclical recovery of oil consumption may absorb most of the expected growth of non OPEC countries next year.

The international trade situation and its impact on global economic growth are crucial to the balance and price of oil market in 2020. At present, most major economic forecasters, including the International Monetary Fund (IMF) and the organisation for economic co operation and development (OECD), believe that global economic growth will remain low in 2020. But if global expansion accelerates again, economic activity and oil consumption are likely to achieve faster growth.

After the IMF and OECD, major oil statistics agencies predict that global economic growth will only accelerate slightly next year, which means that the oil market will oversupply. By contrast, oil traders are increasingly betting that the economy will accelerate growth, thereby eliminating the expected oil surplus and even pushing the market into deficit.

Holland Cooperation Bank said that oil prices still have room for growth next year. Holland Cooperation Bank said that looking ahead, we believe that the basic oil data will improve in the next few weeks, and US crude oil inventories will fall to the lowest level in recent years before the end of the year. Entering 2020, we believe that oil prices still have strong room for growth.