Pump jacks extract crude oil from oil wells
Pump jacks extract crude oil from oil wells in Midland, Texas. US crude production climbed to a record 11.7m bpd last year. Image Credit: Bloomberg

BENGALURU: Crude oil prices look likely to trade below $70 per barrel in 2019 as surplus production, much of it from the United States, and slowing economic growth undermine Opec-led efforts to shore up the market, a Reuters poll showed on Monday.

A survey of 32 economists and analysts forecasts the North Sea Brent crude oil benchmark will average $69.13 per barrel in 2019, more than $5 lower than last month’s projection.

Brent has averaged $71.76 in 2018. “The first half of 2019 will be dominated by concerns about oversupply,” said Ashley Petersen of Stratas Advisors.

The Organization of the Petroleum Exporting Countries and other producers including Russia, known collectively as Opec+, agreed earlier this month to cut production by 1.2 million barrels per day (bpd) to try to drain global crude inventories and support prices.

But the cuts are not due to take place until January and prices have fallen more than 15 per cent since the announcement.

“The market had largely priced in renewed production cuts from Opec. As a result, we expect prices to sink if Opec or Russia diverge from their production quotas notably,” said Cailin Birch, an analyst at the Economist Intelligence Unit.

“We expect the cuts to be renewed in April, when the deal comes up for review, as higher output from the US and weakening global demand require continued restraint.” Oil prices have fallen more than 40 per cent from multi-year highs reached in early October on concerns about the impact of a trade dispute between the United States and China on global economic growth and demand for oil.

Another potential headwind next year is slowing consumption.

Many analysts project demand growth of a little over 1 million bpd in 2019, compared with an increase of 1.54 million bpd in 2018, according to the US Energy Information Administration.

Meanwhile, US shale oil output growth is expected to remain robust, adding to supply. The United States this year surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall US crude production climbing to a record 11.7 million bpd.

“We expect US (companies) will increase shale oil production continuously over the next year,” said Adri O Morron Salmeron, economist at CaixaBank Research.

The Reuters poll forecast US light crude would average $61.05 per barrel in 2019, versus $67.45 projected in the previous poll. It has averaged $64.98 in 2018.

Analysts believe the end of US sanctions waivers on Iran’s oil exports will put extra pressure on oil prices.