WEEKLY ENERGY RECAP: OPEC and IEA fail to factor in global oil supply threat

WEEKLY ENERGY RECAP: OPEC and IEA fail to factor in global oil supply threat
The logo of the Organization of the Petroleum Exporting Countries (OPEC) sits outside its headquarters in Vienna, Austria. (Reuters/File)
Updated 13 October 2019

WEEKLY ENERGY RECAP: OPEC and IEA fail to factor in global oil supply threat

WEEKLY ENERGY RECAP: OPEC and IEA fail to factor in global oil supply threat
  • Both OPEC and the International Energy Agency (IEA) see lots of oil supplies through 2020, each flagging similarly pessimistic oil demand growth outlook

Oil prices recorded their first weekly gain in two weeks, driven higher by unrest in Iraq and Ecuador, as well as by optimism over talks between the US and China aimed at ending their trade war. 

The attack on an Iranian oil tanker off the coast of Jeddah overshadowed the latest hints from OPEC about the possibility of making deeper output cuts.

Brent crude finished the week at $60.51 per barrel, while the US WTI measure also advanced to $54.70 per barrel.

Supply disruptions originating from US sanctions on Iran and Venezuela continued to make for a tight spot market even as concerns over slower global growth and the US-China trade war put downward pressure on the market for future oil deliveries.

Both OPEC and the International Energy Agency (IEA) see lots of oil supplies through 2020, each flagging similarly pessimistic oil demand growth outlook that may have neglected the fragility of global spare production capacity.

In their monthly reports, neither OPEC or the IEA factored in concerns about global oil supply threats — even if Saudi Arabia took just 12 days to restore output to pre-attack levels without necessitating the suspension of exports.

The speed and efficiency of the Saudi response may have lulled the market into a false sense of security because if such attacks happen elsewhere, the story could have been very different — with serious supply outages sending the oil price rocketing.

OPEC and the IEA have pumped pessimism into the market that is helping to put downward pressure on oil prices. 

Separately, the US Energy Information Administration (EIA), sharply lowered its oil price outlook as it sees weak oil demand growth more than offsetting the higher risks of supply disruptions after the recent attacks.

It expects Brent to average $63.37 per barrel in 2019, and $59.93 per barrel in 2020. It sees WTI averaging $56.26 per barrel in 2019 and $54.43 per barrel in 2020. 

The EIA forecast US oil production to average 12.26 million bpd in 2019, and 13.17 million bpd in 2020.

However there may be a mismatch here between its expectations of a lower oil price and higher US output because the Permian producers require higher prices than those forecast to sustain capital expenditure.

Hence, such lower oil prices forecast for 2019 and 2020 should see oil production growth trending lower as budgets are squeezed.

S&P Platts Global reported US oil drilling was 19.8 percent lower than a year earlier, while the US oil and gas rig count has also been declining since the end of last year — dipping to 931 lately after a high of 1,233 in mid-November 2018.

Such numbers raise questions over the sustainability of the US shale oil output growth without a corresponding hike in oil prices.


IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
Updated 35 min 14 sec ago

IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
  • IMF had rapidly increased concessional financing to emerging market and developing economies

WASHINGTON: The head of the International Monetary Fund on Monday said the global lender needed more resources to help heavily indebted countries, citing a highly uncertain global economic outlook and a growing divergence between rich and poor countries.
IMF Managing Director Kristalina Georgieva, who has long advocated a new allocation of the IMF’s own currency, Special Drawing Rights (SDRs), said doing so now would give more funds to use address both the health and economic crisis, and accelerate moves to a digital and green economy.
Under outgoing President Donald Trump, the United States, the IMF’s largest shareholder, has blocked such a new SDR allocation, a move akin to a central bank printing money, since it would provide more resources to richer countries since the allocation would be proportionate to their shareholding.
Swedish Finance Minister Magdalena Andersson, the new chair of the IMF’s steering committee speaking at an online news conference with Georgieva, said it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.
Andersson, the first European to head the International Monetary and Financial Committee in more than 12 years and the first women, started her three-year term in the role on Monday.
Georgieva said the IMF had rapidly increased concessional financing to emerging market and developing economies, including through donations by member countries of some $20 billion in existing SDRs. That would continue to play an important role, but further steps were needed, she said.
“It will continue to be so important, even more important, for us to be able to expand our capacity to support countries that have fallen behind,” Georgieva said.
She said a new SDR allocation had never been taken off the table by IMF members, she said, adding that some members continued to discuss it as a possible move. A possible sale of gold from the IMF’s reserves would have “some opportunity costs” for the IMF, but would be up to members, she said.
She said she expected the Group of 20 major economies to extend the current moratorium in official debt service payments by the poorest countries, now slated to end in June, but much would depend on the pace of vaccinations in coming months.