Three essential factors will determine the direction of the oil price next year, according to Rystad Energy.
In a market update, Bjørnar Tonhaugen, head of oil market research at Rystad Energy, argues that a balanced oil market in 2020 is contingent on these pillars:
1. No global recession.
2. Continued OPEC production cuts.
3. The effect of new IMO 2020 regulations.
“Markets can balance with an extension of OPEC cuts through 2020, as we believe the IMO 2020 regulations will create more demand for crude oil. Moreover, the global economy needs to avoid a sharp slowdown and oil demand recover to more normal growth rates of between 1 million and 1.2 million barrels per day,” says Tonhaugen.
“If the stars fail to align, however, OPEC may need to discuss much deeper cuts to support the market,” Tonhaugen adds.
In its latest Oil Market Balances Report, Rystad Energy finds that the market can come into balance in 2020, even at current oil prices, as the latest revisions suggest a call-on-OPEC crude oil reaching 30.1 million barrels per day (bpd) next year, compared to 29.5 million barrels per day in last month’s report.
However, a balanced market next year also implies that the global economy does not enter a technical recession and that demand recovers to around 1.2 million bpd growth. OPEC needs to maintain current production levels, with extended cuts through at least 2020, while the introduction of stricter shipping fuel regulations – the so-called IMO 2020 effect – will cause a net positive effect on crude demand growth next year of about 1.0 million bpd in order to balance the global gasoil market.
“Without the expected additional crude runs in 2020, on top of the normal growth in refinery runs to keep up with overall products demand without IMO 2020, prices will be even lower next year – unless OPEC cuts its production to around 29 million bpd in 2020,” Tonhaugen remarks.
Rystad Energy forecasts that crude oil and lease condensate production growth outside of OPEC and Russia will reach 2 million bpd in 2020, down 0.2 million bpd from our previous estimate. The US oil supply forecast for December 2020 is revised down by 0.5 million bpd to 14.0 million bpd, which represents a yearly addition of 1.15 million bpd, according to the independent energy research firm.