One reason is the likely impact of approaching shipping fuel changes (IMO 2020), said chief oil market analyst Bjørnar Tonhaugen.
He added: “Due to a current crude quality mismatch in the market, with tight supplies of medium and heavy barrels and a surplus of light, sweet supply, the actual call on OPEC+ barrels, which mostly consist of the former, will not decline by as much as overall global supply-demand figures suggest.”
Rystad forecasts that the call on the Organization of the Petroleum Exporting Countries plus Russia and other supportive producers (OPEC +) to cut production, from the present quarter to 4Q 2019 will ease by 1.5 MMb/d to 29 MMb/d.
“However, what matters now is the extent to which production will grow from countries outside the OPEC+ alliance relative to demand growth,” Tonhaugen said.
“We expect non-OPEC+ production to grow by 1.9 MMb/d year-on-year in 2019, driven by the continued rise of the US shale industry, whereas global demand is expected to grow only by between 1.1 MM and 1.2 MMb/d year-on-year.
“In other words, as non-OPEC+ adds more supply than global demand is increasing by, OPEC+ will still be pressured to manage production in order to balance the global market.”
Rystad expects US oil production to climb by 1.6 MMb/d this year, reaching 13.4 MMb/d by December, with much of the growth coming from the Permian basin.
Tonhaugen added: “We believe the current oil price weakness is fueled more by expectations of faltering trade prospects and a worsening global economy, rather than by the direct effect of new and existing tariffs on oil demand.”
If the US and China decide to pursue more tariff increases, global oil demand growth could fall by 100,000 b/d in 2019 and by 400,000 b/d in 2020, as a result of lower trade volumes.
“The downside may be even greater if the global economy, especially the Chinese economy, continues to slow. With this in mind, we believe the market is currently bracing for a greater impact than what current tariffs will deliver,” he concluded.