Commodities: Oil Market Report for 2020. Will it be as bad as expected?

Investors were disappointed to hear the oil market report for 2020. Internal Energy Agency reports that the 2020 oil market will be turning ugly. Many market commentators thought that $100 per barrel of oil would make a back in 2020. According to different reports, next year would not be the best for the oil market.

The main assumption was that the deficit of oil would underpin the rising prices. It appears that the initial look at the forecast for supply/demand shows persistent surpluses in the market. The main culprits are a rising shale production, slowing global economy and the prospect of a deepening China-US trade war.

The oil market is starting to reflect the potential for surplus next year. Russia’s pipeline contamination crisis and U.S. sanctions on Iran and Venezuela should have made the market tighter. Nonetheless, oil prices dropped below $60 last week compared to $75+ in late April. 

“The market is asking why it should bother going long for just three a mere months when the future looks bleak,” reports Amrita Sen, chief oil analyst at Energy Aspects Ltd. It makes sense for traders to lose hope in the market with the current global political events. The overall economy is not too stable and the surplus is unavoidable.

The Organization of the Petroleum Exporting Countries, OPEC+, alliance led by Saudi Arabia and Russia will be affected by the bearish outlook. If the current forecast proves to be true, the group may have to independently prevent a surge in global oil inventories. They will be forced to keep its output cut for much longer than anticipated. OPEC initially started withholding their supply since the start of the year to prop up prices.

The disappointing forecast was caused due to global politics. The market did not expect President Donald Trump to create such erratic policies. The International Monetary Fund cut its forecast for demand for commodities is 6% next year. This would be the lowest since 1990.

The Future of OPEC+ According to the Oil Market Report

“There is daily growing evidence of a sharper-than-expected slowdown in the demand of oil,” reported Martijn Rats, oil analyst at Morgan Stanley in London, UK. Among the world’s top oil consumers, year-on-year consumption growth came to a halt in March of 2019. The demands in April also show little increase.

Most of the oil consultants agree on the 2020 forecast of oversupply. The unanimity is due to no one seeing a recovery in Iranian and Venezuelan output. Over the last year, the combined output of the two OPEC producers dropped around 2.2 million barrels a day. The future looks even bleaker than the present. Especially that we still do not know the results of the US-China trade war.

“With a production cut now happening more likely than not, it should be highly supportive for oil prices,” reported Stephen Innes, Managing Partner at Vanguard Markets. “Also with the Mexican stalemate avoided and no harmful shockwaves from this weekend G-20 meeting, risk assets should open with a bounce in their step and oil could trade favorably as WTI and Brent will continue to monitor the larger risk environment high,” added Innes.