Crude oil prices expected to firm up in second quarter
Times News Service
MUSCAT: Oil prices for the first quarter of 2019 have posted their best quarterly performance since 2009. Buoyed by signs of a tightening market, with Saudi Arabia taking the lead in curbing production, and a decline in production from the US, Russia, Canada, Libya and Iran, among others, oil prices are expected to firm up during second and third quarter of the year. In research published recently, National Bank of Kuwait (NBK) evaluated the state of oil markets for the first quarter of 2019 and provided an outlook for the second and third quarters.
Improving oil prices have been driven by a tightening market, with production cuts across a number of global producers. Organisation of Petroleum Exporting Countries (Opec’s) efforts to set production limits, in addition to commitments to the Vienna Agreement, have resulted in significant reductions in output by leading oil producers.
Opec-11 compliance reached 106 per cent in February, with aggregate production falling by 812 kb/d. Non-Opec compliance improved to 52 per cent in February, from 25 per cent in January of this year. Russia recently reiterated that it intends to fully comply soon.
Political turmoil has resulted in a supply adjustment, with output from Venezuela, Libya and Iran falling. Even in the US, supply has been less bullish. While US crude production continues to break new ground, the number of oil drilling rigs has fallen for six consecutive weeks, by 7.8% in 2019. NBK Group Chief Economist, Dr Saade Chami, said: “We expect oil prices to firm up over the second and third quarter of this year, as estimated global oil demand remains unchanged and the demand/supply balance flips into deficit for the second and third quarter of the year.”
“The possible non-renewal of the 180-day US sanctions waivers on Iran expiring in early May will have a significant impact on oil markets, with a potential reduction in supply of several thousand barrels. However, experience taught us that oil prices are subject to large swings as we have witnessed recently,” he added.
The report indicates that a more aggressive response vis-àvis Iran in the context of falling Venezuelan production could lead to an even tighter market, especially in heavy crude, and propel crude prices above what US president Donald Trump would be comfortable with. Extending the waivers for another six months or slowly tightening the criteria, by reducing the list of countries eligible for waivers, might become an attractive middle way for the US.
Dr Chami further said: “Of course, the oil price outlook rests on several moving parts, both economic and political, and not all of which will necessarily come into play to the extent envisaged – or at all – duringthe remainder of the year. Policy changes, global geopolitical conditions and market dynamics will continue to affect a rapidly shifting price environment.”