Abu Dhabi: A full implementation of the recent output cuts deal reached by Opec could stabilise oil markets in 2019 and reduce the risk of a decline in oil prices in the short term, analysts said.
However, analysts also raised concerns about the ongoing trade war between the US and China and its fallout on growth and demand next year.
“The recent production cut agreement, if implemented fully, would stabilise the oil market next year and reduce the risk of renewed decline in oil prices in the short-term,” said Garbis Iradian, Chief Economist for MENA at the Washington-based Institute of International Finance in a report on oil markets.
He, however, expects global oil demand growth to decelerate from 1.3 million barrels per day (bpd) in 2018 to 1.1 mbd in 2019 driven mainly by the expected slowdown in real GDP growth in China, India, and other Asian economies, which account for more than 70 per cent of the incremental global demand for oil.
“The slowdown is largely due to trade tensions and tighter global monetary policies,” Iradian said. “We expect Brent and WTI (West Texas Intermediate) oil prices to average $67 (Dh246) and $59 per barrel, respectively, in 2019, based on a strong compliance by Saudi Arabia, the UAE, and Kuwait, and weaker compliance by Iraq and non-Opec countries.”
Opec+ (Organisation of the Petroleum Exporting Countries and its allies) agreed to cut production by 1.2 million barrels per day on December 7 to boost oil prices and arrest the 30 per cent slump seen since early October.
The global benchmark Brent is currently trading at $60.28 per barrel and West Texas Intermediate at $51.20 per barrel.
Oil prices rose by more than 5 per cent on December 7 following the agreement between Opec and non-Opec members like Russia to cut production by 1.2 million bpd from January 2019 for six months.
Ole Hansen, head of commodity strategy at Saxo Bank, expects crude oil to climb higher and potentially re-establish a range between $60 and $70 per barrel, but the short-term direction is likely to be determined by macroeconomic data and the stock markets.
“The 30 per cent slump since October is likely to support demand while also potentially reducing production growth in the US over the coming months. These developments together with a continued drop in supplies from Iran should eventually lend some support,” he said in a note.
But, there is also a chance of oil prices falling below $50 per barrel, according to Iradian.
“If US production overcomes transport bottlenecks sooner and if the recent production cut agreement falls apart or compliance is very weak then oil prices could fall to well below $50 per barrel,” he added.