Global Oil and An Uncertain Future

Global oil over the years has been a litany of contrasting if not oft times conflicting interests, competing in a far from free market whatever the commentariat would have you believe.

As we look forward to 2020 the hopes and expectations of the market are as diverse as the participants.  Questions remain over the relevance of OPEC and the long term direction of the cartel. The Saudis have decided to cash in on their national oil company in a bid to get ahead of the curve as increasingly more producers look to diversify out of oil. The twin spectre of the ever expanding global renewable footprint and the increased efficiency of the global transport fleet, seems destined to shape a different future to the one we contemplated a decade ago.

Then there is the 'global warming' crisis which has put fossil fuels investment into full retreat. Lenders are no longer prepared to invest in fossil fuel projects at least outside of China. Add to that the clamour from investors in the shale oil boom for returns on almost a decade of production growth, profligacy and disappointment . The US has become the worlds largest producer of oil and gas, yet the industry is saddled with monumental debt. Production is forecast to increase in 2020 but far less than in previous years. Alot of that will be dependent on how much OPEC produce. Whilst the US is expected to produce about 13 million bpd in 2020 it may only achieve that rate if OPEC continue to curb their own production. There is a clear negatively correlated covarience between OPEC production cuts and Shale production. OPEC are prepared to accept this relationship on the basis that tier 1 shale acreage will be rapidly depleted and the shale boom will falter.

Non OPEC production growth in 2020 has been forecast at about 2.6 million barrels per day. Much of it coming from Brazil, Norway and Guyana and about 700,000 bpd from the US. Depending  on which agency you obtain your information demand growth for 202 is estimated at about 1.3 million barrels a day with most of it coming from the emerging market, chiefly China and India. OPEC have revised their forecast as is their wont. By undoubtedly employing a hitherto unkown algorithmic hash, OPEC now predict a 0.1% increase in global growth to 3.1%  for 2020 which equates in real terms to a 140,000bpd hike in global demand. That translates to circa 102.3 million barrels a day demand (ceteris paribus). Though we are all well aware  that all things are very rarely equal.

It remains to be seen if the much heralded phase one of the China-US trade deal will  beget a phase two. Whilst the deal might create some confidence in the market there is every indication that other WTO members including the EU may challenge its legality. There is also the issue of Iran and Venezuela, who could conceivably be joined by a truculent Iraq. Geopolitics has been the big imponderable in recent times fuelled in part by US foreign policy decision making authored by a abstruse influence. 2020 feels like it will be an interesting year.