Why there's no room for $100 oil in 2020

Many oil traders have predicted a bullish 2020 for the global oil industry, but recent market analysis demonstrates that this is unlikely to happen.

The price of oil would trade between $60 to $75 per barrel in 2020, which will lift oil revenues for GCC countries by around $40 billion (Dh147 billion), say economists.
However, they believe that the market talk of oil trading at $100 next year is far-fetched, mainly due to oversupply and a slower global economy.
"We expect the price of oil will reach $75 a barrel by the end of next year from the previous $70, which would result in the Gulf's oil export revenues being around $40 billion - or 2.4 per cent of GDP - higher in 2020 compared with this year," said James Swanston, economist for the Mena region at Capital Economics.
"Most of these revenues accrue to governments and so budget positions would improve;  surpluses in Kuwait and Qatar will grow and deficits in Saudi Arabia, UAE, Oman and Bahrain would narrow. But we doubt that governments will take advantage of this to loosen the fiscal purse strings."
Brent crude futures settled at $66.14 a barrel, down 40¢, or 0.6 per cent, on Friday, but marked a weekly rise of around 1.4 per cent. US West Texas Intermediate crude futures settled at $60.44 a barrel, falling 40¢, or 1.21 per cent, while gaining about 0.6 per cent on the week.
Deficits in Bahrain and Oman remain in excess of 5 per cent of GDP which, combined with high debt-to-GDP ratios and low savings, means the focus will remain on fiscal consolidation.
Meanwhile, 2020 budgets released by Saudi Arabia and Qatar over the past couple of weeks suggest that policy will stay tight.
In the former, with growth in the non-oil sector strengthening the authorities have shifted their attention back to their target of a balanced budget by 2023. Strong balance sheets mean that Kuwait and the UAE have the most scope to loosen policy.
"The UAE is the one country where authorities are likely to be more inclined to ramp up spending in order to support the economy ahead of the Expo 2020 Dubai. Indeed, the UAE is the only economy in the Gulf where we expect growth to be stronger next year than most currently anticipate," Swanston said.
Francisco Blanch, head of commodities and derivatives research at Bank of America Merrill Lynch, projects an average Brent price of $60 a barrel in 2020.
"We believe spot prices could rise to around $70 a barrel by mid-year. Diesel prices, further boosted by a big surge in marine gasoil demand on the back of IMO 2020 regulatory changes, could approach $100 per barrel in the first half of 2020," Blanch said.
Slava Kiryushin, Dubai-based global head of energy at DWF, sees oversupply in the oil market.
"Many oil traders have predicted a bullish 2020 for the global oil industry, with some going as far as speculating the revival of a $100 per barrel," Kiryushin added.
"However, recent market analysis demonstrates that this is unlikely to happen and the market will be in a position of oversupply. My view is that this will primarily be due to increased shale production and a slower than expected growth of the global economy."
"No doubt that the growth of the oil supply is a sensitive topic for Opec+ members as 500,000 bpd were agreed to be cut from Opec's supply. Overall, the market is less optimistic over the 'revival' of the oil price."
Garbis Iradian, chief economist for the Mena at the Institute of International Finance, expects Opec's crude production to average 30.1 mbd, at par with 2019.
"The oil market continues to see robust crude oil production from the US, Canada, and Brazil, which could lead to a supply glut in 2020. At the same time, growth in oil demand is likely to remain subdued given the continued slowdown in the global economy," Iradian said.
He sees non-Opec supply - including the US - is likely to increase by 2 mbd in 2020 as compared to an increase of 1.9 mbd in 2019.
- waheedabbas@khaleejtimes.com