Oil Market Faces Precarious Few Months
The oil market faces a precarious few months.
That’s according to Wood Mackenzie’s (WoodMac) latest edition of the Edge, a regular column penned by the company’s chairman and chief analyst Simon Flowers.
“The biggest risk is this winter. Losing another 1 million barrels per day or more from Iran comes on top of a similar loss in supply from Venezuela over the last couple of years,” Flowers stated in the column.
“Saudi Arabia, UAE and Kuwait have stepped up production since July to minimize the increase in price as the market tightens. We think there’s just enough growth in supply from elsewhere to muddle through the next few months, meet winter demand and avert a price spike. Brent should hold around U.S.$78 a barrel, but it’s a very fine line,” he added.
“OPEC spare capacity was an ample four million to five million barrels per day two years ago. There’s only 700,000 barrels per day of additional available within 30 days right now. That means the market is vulnerable to strong demand in a cold winter or any new supply outage,” Flowers continued.
The WoodMac representative said the situation “may look better” once the northern winter is over, “but only up to a point”.
“We forecast that Brent will ease and average U.S.$74 a barrel in 2019. We expect supply to grow 1.6 million barrels per day in 2019, with U.S. tight oil driving this. That’s well ahead of 1.2 million barrels per day of demand growth and should lead to a healthy inventory build during the year,” Flowers stated.
“But with Iran in the full grip of sanctions and Venezuela continuing to decline, that limited OPEC spare capacity will cast a shadow over the market for some time,” he added.
Earlier this month, the November OPEC Bulletin commentary piece stated that “there will no doubt be hard times to come in the oil industry,” listing geopolitical storms, disruptive weather events, speculation and transportation issues as examples of drivers.
The commentary piece added, however, that the platform for dialogue created through the group’s Declaration of Cooperation “can help calm stormy waters and provide the ship that is our industry safe passage”.
The Declaration of Cooperation was first signed in December 2016 between 24 OPEC and non-OPEC oil producing countries.
According to WoodMac’s website, Flowers draws on the “expertise, intelligence, deep insight and data” from across the WoodMac business in his column. Flowers first joined the company in 1983.
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