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25th October 2019 Oil Market Wrap

The week got off to a promising start as US inventories declined and the market looked for further supply adjustments, but the gloomy economic outlook dampened all gains by the end of the week

Capital Economics -
On Friday, Brent crude was holding above US$61 with WTI close to US$56 a barrel

The week got off to a promising start as US inventories declined and the market looked for further supply adjustments, but the gloomy economic outlook dampened all gains by the end of the week.  In Friday trading, Brent crude was still holding above US$61 with WTI close to US$56 a barrel.

The fragile health or demise of the global economy continues to scare investors and without strong growth, oil demand will drop. A Reuter’s poll showed economists worried about any hope of a synchronised recovery, with expectations of a steeper decline to come. In a research note from RBC Capital Markets, the mood was of US growth “catching down” to the rest of the world. Growth in OECD has been stagnant for years, but Germany’s employment rate was lower this month, with manufacturing data also lower.

The group chief economist of Capital Economics, Neil Shearing says “world GDP growth is likely to be weaker that most anticipate over the next year or so,” citing growth expectations below that of the International Monetary Fund with 2019 at 3 percent and 2020 at 2.8 percent.

As the world faces another year of possible global oil oversupply, investment bank Goldman Sachs says the situation may not so as bad as it looks.  OPEC and friends will likely curtail production as is and may even increase efforts for deeper cuts, but the bank lowered its forecast for American oil production to 0.7 million barrels a day for 2020. This week’s report says its due to a slowdown in drilling and warned the industry to be aware of “updated longer-term decline rates” that appear to be a reality. Productivity data for 2020 for US shale oil “appears to be decelerating across key US oil shale plays. Price expectations for 2020 seem range bound with Brent holding around US$60 a barrel.

Political uncertainty continues in the Middle East, but without the same oil price premium as in the past. A report at the close of this week says President Donald Trump is planning to send tanks into Syria to protect the Eastern oilfields. Media reports say this could happen soon from the available base of troops currently in the region. The President remarked this week that the US has “secured the oil” while withdrawing forces from the Eastern Syrian desert before the Turkish invasion. Such a move is already being criticized by some as a US move to support Turkish political action against the Kurdish community.

Investors will be closely watching the stock market as listed companies release 3rd quarter results. With concern that oil demand is slowing, the expectations fall within the ‘lower for longer” scenario, with many of the oil service companies already showing a fall in profits.

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