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Output cuts seen helping oil prices recover in 2019

*Crude expected to trade in $60 – $70 per barrel range towards second half of the year

Analysts expect oil prices to recover next year due to an output cut agreement between the Organisation of Petroleum Exporting Countries (Opec) and non-Opec members and declining production from Venezuela and Iran.

Oil demand is also forecast to be higher in 2019, something expected to support oil prices.

“There is pervasive market worry that the planned cuts by Opec+ [the alliance between Opec and non-Opec oil producers] will not suffice, amid economic growth concerns, to offset the relentless increase in US shale supply and stabilise the market,” said Giovanni Staunovo, commodity analyst at UBS Wealth Management in a statement.

A crude oil refinery PODCAST run by INA, Croatia’s national oil company, in the European country’s port city of Rijeka. Image Credit: Reuters

“We consider these fears overdone and see the Opec+ production cuts, along with ongoing supply declines in Iran and Venezuela amid healthy oil demand, supporting higher prices.”

He said the oil demand by China, the second-largest consumer after the US, is still strong, with crude imports exceeding 10 million barrels per day (mbd) in November and expected to remain above that mark this month as well.

“Taking supply and demand dynamics into account for next year, we retain our view that Brent prices will recover into a $70-$80 [Dh257.11-Dh293.84] per barrel range next year.”

Mustafa Ansari, senior economist for energy research at the Dammam-based Arab Petroleum Investments Corporation (Apicorp), also expects higher oil prices next year.

“Based purely only on fundamentals, an Opec cut of 1.2 mbpd [million barrels per day], high chances of supply losses from Iran, Venezuela, Libya and Canada, and global oil demand growth of 1.4 mbpd, the market will achieve balance in 2019, but this will take time,” Ansari told Gulf News.

He predicts that oil will trade in the $60-$70 per barrel range towards the second half of the year, barring a sharp slowdown in the global economy.

When asked whether Brent oil could touch $50 per barrel in the short term, Ansari said this remains very uncertain, adding that anything can cause prices to spike up or down in the short term.

“While there is always the likelihood of it hitting $50 [per barrel], more important will be whether it stays there, drop further or recover.”

Brent, the global benchmark, was down by almost 1 per cent at $53.82 per barrel when markets closed on Friday. West Texas Intermediate (WTI), the US benchmark, was down 0.63 per cent to $45.59 per barrel.

Oil prices fell 11 per cent last week, posting their worst performance in nearly three years due to concerns that weakening economic growth and surging US supply will lead to a surplus in 2019.

On the current slide in oil prices, Ansari said US shale supply continued to surprise on the upside, with the Energy Information Administration (EIA) now forecasting US crude production to average 10.9 mbpd in 2018 and 12.1 mbpd in 2019, an upward revision of 0.6 mbpd and 1.3 mbpd from its January 2018 forecast.

There have also been growing concerns about the broader macro-environment and the rise of protectionist policies, which are casting a dark cloud over oil demand, he added.