2019 Oil Outlook: Disagreement Over Market Tightening, Consensus On US Dominance

2019 seen as a good year for US oil. File Image / Pixabay

Early New Year's predictions from the International Energy Agency and other sources about the  crude market suggests the usual: a complete lack of consensus on whether there will be a tightening or surplus, along with ongoing rhetoric and vitriol from Iran due to the U.S. sanctions, and continued dominance of the U.S. as the world's biggest producer.

The IEA on Thursday worried that uncertainty over the global economy stemming from U.S.-China trade tensions could undermine oil consumption in 2019, as supply growth mounts next year.

In its previous November report, the agency expected the global oil market to remain in surplus throughout 2019, but now it believes a deficit will occur by the second quarter of next year due to the Organization of the Petroleum Exporting Countries' (OPEC) efforts to curb output.

By contrast, Ed Morse, global head of commodities research for Citi, thinks OPEC may not have gone far enough and that it will have to cut further next year due to offset U.S. output and a potential global glut.

He said, "They're going to have to re-address this issue sometime next year, but I'm glad they're meeting for their sake in April, and it may be by April they're going to have to confront another cut."

Morse went on to remark that OPEC is "confronting a much weaker market than they've seen in the past two years when they've drawn down inventories; demand is really problematic going forward and they're now confronting the result of the higher prices that they've orchestrated, namely this incredible rebound in U.S. production which is just overwhelming their efforts to deprive the world of inventory."

Ironically given its worry about a market tightening in 2019, the IEA acknowledges the enormous might of U.S. shale: "As production grows inexorably, so will net imports decline and rising U.S. exports will provide competition in many markets, including to some of the countries meeting in Vienna last week."

It added, "The United States … is now the world's biggest crude oil producer …[it] is also the world's biggest consumer and lower prices are welcome, although its producers will want to see them stay high enough to encourage further investment."

Wrapping up Thursday's predictions for the immediate future of the crude market was what people in some quarters may view as comic relief, in the form of Bijan Zanganeh, oil minister for Iran, yet again declaring (this time to the IRNA news agency) that his country has no plans to reduce its oil production, but will remain a member of OPEC.

It was also revealed that Zanganeh had joined the communications forum most famously used by U.S. president Donald Trump to issue kudos and brickbats, namely, twitter: even though Twitter is banned in Iran, it's used by an increasing number of authorities, and the oil minister tweeted that he joined "for a more dynamic and effective relationship with domestic and foreign audience."

Presumably, one sure bet in 2019 are numerous Trump/Zanageh twitter spats.

Of course, it remains to be seen whether the OPEC cutback agreement will be effective or even last long enough to fulfill some of the New Year's predictions: although Russia agreed to cut back production under the deal, earlier this week it stated that it would reduce output gradually, which caused alarm in some analytical circles in light of authorities in the former Soviet Union repeatedly insisting that cuts aren't necessary.