Global oil demand since the beginning of 2019 has unexpectedly been lower. With oil demand, this year rising just 0.8%, according to some media reports and independent research houses, it is the slowest pace of demand since the financial crisis that jolted the global economy in 2008.
As on December 5th and 6th 2019, the Organisation of Petroleum Exporting Countries(OPEC) and its allies like Russia, together known as OPEC+ are due to meet in Vienna. The question is, are they going to consider a further production cut to support oil prices in the international markets?
However, during their December 2018 meeting, they already decided to cut oil production by 1.2m barrels a day, with an intention to support the then plunging crude oil prices. However, despite the consensus production cut, some of the OPEC members like Nigeria and Iraq have continuously reported higher oil production than was permitted during the December 2018 deal.
Also, Russia, a non-OPEC member who was part of the December 2018 deal, was not able to stand at par with the last years’ decision and its average output in 2019 was higher than 2018. However, Saudi Arabia has adjusted its production and reduced its oil output by more than the amount required as per the December 2018 deal.
But all efforts have gone in vain, as oil prices are still hovering near the last year's lower levels of $60-65/bbl., despite America imposing export sanctions on Venezuela and Iran. Also, Iraq, the second-largest oil producer from the OPEC region witnessing major protests. Most significantly, despite a drone attack launched in September 2019, targeted on the two large oil facilities of Saudi Arabia, that knocked down approximately half of the Kingdom's production.
However, the recent past event has sent oil prices up by around $75/bbl, but again it recovered from those peaks and has lately been again hovering near the $60/bbl mark.
In December 5th and 6th OPEC+ meeting, a potential production cut is not looking possible again, as Saudi Arabia's giant oil-producing company “Saudi Aramco” recently announced its plan to take company public and lists its shares on the stocks exchange, a further production cut would result into lower earnings estimates for Aramco, which will be unfavourable for its stocks as well.
The recent report released by International Energy Agency (IEA), has stated that OPEC+ dominance in the oil market is fading gradually and it forecasted that by 2030, OPEC including its ally Russia would be able to pump just 47% of the global oil.
The major trend in energy demand- OPEC WOO 2019
In the latest World Oil Outlook released by OPEC, it was reported that slower population growth and enhanced energy efficiency have led to a lower energy demand growth in the developed nations in the recent decade. It also added that at present, emerging nations accounts for a large portion of energy demand increase, given their accelerated trend in urbanization and decent population growth as well.
The global primary energy demand is expected to surge by 72mboe/d to 357.5mboe/day by 2040 from 285.8mboe/day recorded in 2018, reflecting an increase of 1% p.a. between 2018-2040.
In India and China energy demand is expected to increase by an average 3.2% and 1.1% respectively during 2018-2040; however, energy demand in the OECD is estimated to decline by 3.1mboe/d during the same period. It is also expected that India could witness fastest oil demand growth and the greatest additional demand of 5.4mb/d+ in the period to 2040 and demand in China is estimated to reach 17.1mb/d by 2040, reflecting a surge of 4.4mb/d against 2018 levels.
Within the primary energy resources, oil is going to be the most dominant fuel, with demand growth of more than 10.6 mboe/d by 2040; though, it reflects a slow growth rate of 0.5% p.a. too.
However, OPEC estimates that medium-term oil demand is estimated to grow at a relatively higher rate to reach a level of 104.8 mboe/d by 2024 and demand in OECD region is expected to flock on a downtrend after 2020 for rest of the projected period.
Post peak oil demand in OECD countries in 2005, demand shifted to a declining trend until 2015, and then a combination of a plunge in oil prices and comparatively high GDP growth rates particularly in OECD Americas and OECD Europe supported demand growth. But post five years of growth, the outlook for OECD oil demand seems to be returning once again to a softening trend.
The trend was largely supported by OECD Oceania, where oil demand was estimated to decline over the mid-term period. However, it should be taken into consideration that OECD Oceania is lowest average GDP region among all other regions and moreover it is a region with the highest fuel economy for the existing car fleet, primarily in Japan and South Korea. Also, there is stringent regulation on commercial vehicles in these countries, which has led to softening demand for both gasoline (petrol) and diesel as well.
Also, the OECD European region, oil witnessed an abruptly firm demand growth between 2015-2017, which is not expected to continue any further. The demand was largely muted in 2018, and it is expected to have reduced slightly in 2019, together with further contraction in GDP growth. This trend is also supported by the sudden spurt in BEVs, PHEVs, hybrids and alternative fuel vehicles, which recorded strong demand growth and impacted gasoline and diesel demand with associated vehicle sales. The proportion of new cars with diesel engine in Europe plummeted substantially in 2018, driven by increased anxiety over the future of diesel as a fuel. Higher Nitrogen Oxide (NO) and particulate matter emission from burnt diesel, which is stringently regulated across Europe are the major concerns in this regard.
Oil Price Movement
International Crude Oil benchmark, Brent Crude oil declined approximately 5.7% on a YoY basis and has registered a 52w high price of $75.6/bbl and a 52w low of $49.9/bbl, respectively. While wiring, (as on November 15, 2019 at 10:21 AM GMT), benchmark, Brent Crude oil traded 0.71% lower at $61.84/bbl.
At the current trading level, Brent oil prices are showing a steep downtrend, as it traded well below its short-term and long-term support levels of 30-day, 50-day, 100-days and 200-day simple moving average prices. Also, the 14-day and 21-day Relative Strength Index was hovering in the oversold territory with the fall in Moving average convergence divergence. Also, the difference between the 12-day exponential moving average and the 26-day exponential moving average is negative, reflecting an unfavourable trend in the liquid commodity.
Excessive oil supply, lower demand because of contracting global economic prospects will continue to weigh on the crude oil prices in 2020. The oil prices in the first half of 2020 are likely to continue oscillating between $60-65/bbl levels, however, if global economic growth shifts to an upward trend, then oil prices could surge in the second half of 2020. However, recent trends indicate that Brent crude oil prices could test a level below $60/bbl in near-term.
With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities.
Amidst this, are you getting worried about these falling interest rates and wondering where to put your money?
Well! Team Kalkine has a solution for you. You still can earn a relatively stable income by putting money in the dividend-paying stocks.
We think it is the perfect time when you should start accumulating selective dividend stocks to beat the low-interest rates, while we provide a tailored offering in view of valuable stock opportunities and any dividend cut backs to be considered amid scenarios including a prolonged market meltdown.