WEEKLY ENERGY RECAP: IEA pursues negative narrative

WEEKLY ENERGY RECAP: IEA pursues negative narrative
Oil prices retreated after the International Energy Agency said there is an abundance of oil in the market in 2020 while oil demand growth is likely to remain weak. (AFP)
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Updated 12 January 2020

WEEKLY ENERGY RECAP: IEA pursues negative narrative

WEEKLY ENERGY RECAP: IEA pursues negative narrative
  • The previous week’s price rise was of course caused by heightened tensions with Iran

The International Energy Agency (IEA) began 2020 by highlighting the challenges facing the oil market in 2020 while ignoring its strong fundamentals. 

While pursuing this negative narrative it glossed over many important questions such as whether US shale producers plan to increase their production amid the current drawback in drilling rigs.

Brent crude fell sharply to $64.98 over the week while WTI retreated below the $60 barrier for the first time in a month to $59.04 per barrel. The Brent/WTI spread widened slightly to $5.94 per barrel.

The previous week’s price rise was of course caused by heightened tensions with Iran. However the ensuing correction was not because of any de-escalation in tensions, or because of the surprise build in US inventories.

In fact, prices retreated after the IEA revealed that there is an abundance of oil in the market in 2020 while oil demand growth is likely to remain weak. This was enough to dampen oil prices by around $4 per barrel on a weekly basis.

Market participants are still wondering if the downward movement will continue next week, especially considering that the IEA expects demand growth to be just under 1 million barrels per day, with a forecast surplus of 1 million barrels per day of oil.

This is a clear message from the IEA to the market that upcoming ample supplies combined with weak global oil demand growth will cap oil prices in 2020.

We have seen such messages from the IEA at the beginning of previous years whenever the new year starts with an upward momentum in oil prices. OPEC oil output last month was about 29.55 million bpd, which reflects continued over-compliance with earlier announced production cuts.

Overall, OPEC’s compliance with its cuts was 158 percent for December, according to S&P Global Platts data.

Moreover, under the new quotas that went into force on Jan. 1, OPEC’s December production would result in 108 percent compliance.

Yet some outlooks persist in forecasting a supply glut through the first half of the year and say additional production restraint from OPEC and its partners may be needed to prevent an oil price slump.


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

IMF chief sees ‘high degree of uncertainty’ in global outlook
Updated 28 min 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.