Output cuts may stabilise markets but risks remain

Afull implementation of the recent output cuts deal reached by Opec+ could stabilise oil markets in 2019 and reduce the risk of a decline in oil prices in the short term, analysts said.

However, analysts also raised concerns about the ongoing trade war between the US and China and its fallout on growth and demand next year. “The recent production cut agreement, if implemented fully, would stabilise the oil market next year and reduce the risk of renewed decline in oil prices in the short-term,” said Garbis Iradian, Chief Economist for MENA at the Washington-based Institute of International Finance in a report on oil markets.

However, he expects global oil demand growth to decelerate from 1.3 million barrels per day (bpd) in 2018 to 1.1 million bpd in 2019 driven mainly by expected slowdown in real GDP growth in China, India, and other Asian economies that account for more than 70 per cent of incremental global demand for oil. “We expect Brent and WTI (West Texas Intermediate) prices to average $67 (Dh246) and $59 per barrel, respectively, in 2019, based on a strong compliance by Saudi Arabia, the UAE, and Kuwait, and weaker compliance by Iraq and non-Opec nations.”

Opec+ agreed to cut production by 1.2 million bpd on December 7 to boost oil prices. The global benchmark Brent is currently trading at $60.28 per barrel and WTI at $51.20. Ole Hansen, head of commodity strategy at Saxo Bank, expects crude oil to climb and potentially re-establish a range between $60 and $70 per barrel. But there is also a chance of oil prices falling below $50 per barrel, according to Iradian.