Oil prices and stock markets went into a steep decline over the past week, as international organizations warned of growing signs of weakness in the global economy.
Midweek, the bears were uncaged, and Brent crude fell $5 per barrel. But stability prevailed by the end of the week. Brent started the week at $84.16 per barrel and settled at $80.43 on Friday, while WTI fell from $74.34 to $71.51.
Oil prices fell despite renewed dips in Libya’s crude oil output. A major factor in the oil price tumble was an Oct. 8 report from the IMF, in which it downgraded global economic growth forecasts for 2018 and 2019 to 3.7 percent per annum, from 3.9 percent, which would consequently lower oil demand.
Market participants justified the downward movement in oil prices as a correction of earlier midweek highs. Additionally, global stock markets took a plunge and there were bearish figures from OPEC, the International Energy Agency (IEA) and the US Energy Information Administration (EIA). OPEC emphasized that “the market remains well supplied” and that “projections for 2019 clearly show a possible rebuild of stocks.”
On Monday, Hurricane Michael shut down around 40 percent of the US Gulf coast oil output and on Tuesday halted operations from the US’ largest crude oil export terminal, the Louisiana Offshore Oil Port. But the hurricane was fast moving and any concerns surrounding production immediately turned to fears for demand. The impact of lower demand will however be very minimal.
The IEA monthly oil market report published on Oct. 13 came with a strange, premature suggestion that “expensive energy is back.” The IEA report came out right after the IMF’s lowering of the forecast for global economic growth. Both of the reports implied that the health of the world economy is in doubt.
The IEA forecast that the demand growth for oil in 2018 and 2019 will be reduced for both years by 110,000 barrels per day (bpd) to 1.3 million and 1.4 million bpd, respectively. The IEA stated that the global oil supply is growing fast. In September, world oil production, at around 100 million bpd, was 2.6 million bpd higher than a year ago. The IEA also noted that refiners are facing increased competition as capacity additions surge between now and the end of next year. Trade concerns loom large as well, with signs that China’s economy is slowing down as US trade tariffs start to bite.1
After the IEA downgraded its oil demand forecast for 2019 from 1.4 to 1.3 million barrels per day, bearish comments began. However, a few voices tried to remind the market that worries of an oil supply crunch toward the end of this year are very real. Two Indian oil companies hope to import Iranian oil in November despite the threat of sanctions. Negotiations will likely continue right up to the November deadline.
Previously Published by Arab News
- World Economic Outlook, October 2018: Challenges to Steady Growth
- OMR - OMR Public
- Weekly Petroleum Status Report
- OPEC: Monthly Oil Market Report
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