OIl market: the current state and perspectives in 2019

Jan 9, 2019

2019 the oil market meets in a kind of depressive state. Over the past two to three months oil prices declined more than 30%, so investors’ sentiment consequently is rather gloomy.

A rather symptomatic phenomenon was the massive decrease in forecasts by analysts at the very beginning of 2019. For example, Societe Generale Bank lowered the price forecast for WTI in 2019 by $9 to $57.25 per barrel, that is, by 8.6%. Analysts at investment bank Goldman Sachs lowered their forecast for Brent by 11%, and for WTI - by 14%.

Causes of bearish sentiment

Two key factors, which stimulate sales in the oil market, can be distinguished. Firs one refers to demand, the second one - to supply in the oil market.

Talking about oil demand in 2019, the question arose about prospects of economic growth generally in the world, and prospects look bad. Accordingly, the slowdown of the world economy would provoke the decline of oil demand. Last economic data from China, which has been an engine of the global economy for many years, show that the Chinese economy is slowing down.

Do not either forget about global changes in the world - the growth of the market of electric vehicles and sharp and active development of alternative energy. All these has its negative influence on the demand in the oil market.

As for supply in the oil market, the key parties of the oil market (Russia, USA, and Saudi Arabia) produce the oil on the maximal historical levels. The US shales are in excellent shape, as evidenced by both the overall record volumes of oil production and export from the USA and the number of active drilling rigs. It is also significant to solve the infrastructure problem in the United States (pipelines have reached maximum performance and cannot pass more oil), which will allow increasing the volume of oil production in the United States much more.

Besides, massive long-standing projects in Brazil and Canada allow precisely in 2019 considerably to build up the oil production in these countries.

It means the supply in the oil market increases, and it has a defective impact on the oil quotations.

What can make a difference

The new OPEC+, in theory, can lead to a change in oil market conditions in 2019. Recall the countries have agreed to reduce oil production by 1.2 million barrels. And this is enough volume to change the balance in the oil market in favor of buyers.

Negotiations between the USA and China are able to bury the trading war hatchet between countries, what may well lead to the improvement of the perspective of the economic growth not only in China and the US but in the whole world. This, in turn, will provoke an increase in oil demand and oil prices consequently.

Besides, technically, the correction in the oil market is already overdue.

Last but not least, in long- and mid-term perspective oil’s sales look the most preferred. But short-term dynamics will be determined by current market sentiment, which so far is more likely on the buyers' side.