The Economist Intelligence Unit Analysis of Oil Markets for 2019

EIU Analysis of Oil Markets in 2019

My Assessment of Oil Markets for 2019

2019 will be a year of uncertainties for global oil prices, with current prices showing a bearish indicator under 50$ WTI today after a recent cut deal between OPEC and Russia few weeks ago in OPEC meeting in Vienna, but which so far hasn't caused a spike in oil prices as expected in normal circumstances after an announcement of this sort by the bloc of around 1.000.000 barrels.

This especially due to US shale resilience, whose overall oil production has grown  around 2 millions of barrels per day totalling over 11 millions per barrels per day by the end of 2018 and also making it now an exporter of oil and natural gas, while on the other hand, a negative economic outlook for 2019 and trade wars between U.S. and China impacting demand from the EU countries China and India and also the issue of Iran sanction. 

In this regard it is important to stress that oil prices on their main indicators, West Texas Intermediate (New York) and Brent (London) along with the price of OPEC basket of oil have suffered more than 20% of losses of their prices in 2017, and now are under 50$ as an average, in general due to the surplus of production of the main and largest producing countries, Saudi Arabia, Russia and the United States at least until the last meetings of OPEC and Russia, out of which Russia and Saudi Arabia highly dependent on high levels of oil prices and due to the crash of oil prices, agreed to cut their oil production, although apparently has not been enough to stop this crash in the global markets, 

These elements have also been coupled with the turmoil and political risks in the U.S. caused by the Trump administration and his confrontation with the Federal Reserve after recent hikes of interests rates, making the U.S dollar more expensive for oil traders and back-pedalling the demand for oil as this is highly traded in U.S. dollars, even if there have been steps by China, Russia, Venezuela, Iran to use other currencies such as the renminbi, russian ruble for oil trading in order to reduce the dependence on the U.S. dollar for their oil trading and inflows to these respective countries. 

So its still uncertain what outlook will be for oil prices and which countries will be winners and losers out of this global quest for oil dominance and preponderance and market share, with a rise of the development of renewable resources and the use of EV all across the globe, with the traditional oil producing powers struggling to maintain their hegemony over the energy landscape with the expansion of other sources of energy, being natural gas the close follower of oil and other renewable sources such as wind, solar, and the expanded use of batteries for electric vehicles.

Geopolitical Risks:

Just as 2018 was a year with important influence of geopolitical and political risks in the oil markets coming from spots such as Libya, Iraq, Saudi Arabia,Yemen, Syria, uncertainties over the future of Mexico’s oil industry with the election of leftist Lopez Obrador and on Brazil’s oil industry with the election of rightist populist Jair Bolsonaro, also related to Venezuela and its oil crisis coupled with many political and economic uncertainties, 2019 will continue to be plenty of these risks, with further impact on the supplies of oil from these countries, having also presidential elections in an important oil country in Africa, Nigeria, and the possibility of presidential elections due to be held in 2018 in Libya with an unsolved issue of security risks to its oil ports and facilities affecting repeatedly its oil output, altogether adding more pressure to the oil markets, along with the dynamics and direction that could take the sanctions against Iran by the Trump administration and the next steps that Iran could take in the Middle East as a retaliation, which might spike oil prices, if there comes a period of shortage of oil, remembering that OPEC is still considering the possibility of another cut if the market continues to be down regarding oil prices which might affect further oil countries. 

Also it will be important for the oil markets and regarding geopolitical risks, how will be the developments inside the Organisation of Petroleum Exporting Countries (OPEC) as if faces important difficulties first regarding the internal divisions especially between Saudi Arabia and Iran over religious and geopolitical struggles in the region, and also between members from the Gulf, as the position of Saudi Arabia grows more aggressive in the region and after the announcement of Qatar to retire from the oil organisation as a result of the blockade by Saudi Arabia and the United Arab Emirates against Qatar, all this while also the organisation is lacking internal discipline to comply with cut deals and quotas by its country members, 

All this while suddenly Saudi Arabia and Russia have become the main players of this organisation as the bloc is trying to keep control of their traditional market share in order to not fall behind either of the shale oil from the United States or now with the rise of the use of renewable energies, while China has been increasing its oil imports from the Middle East and recently from the United States, while being an active player in countries like Venezuela and other regions of South America in the oil and gas production through companies like China National Petroleum Company, SINOPEC or PETROCHINA.

So 2019 will be a year plenty of geopolitical and political risks in the mentioned areas which might well impact global oil supplies, all the more so if any major disruption of oil exports happens in a large oil producer, like Saudi Arabia, now facing important threats close to its borders in Yemen and over political domestic developments.