CAPITALSTARS MCX COMMODITY CRUDE OIL NEWS UPDATE : 17 October 2019

Energy Preview: Brent Crude Could Gradually Decline To $55 Per Barrel Over Coming Five Years Says IMF

Crude Oil prices have been relatively stable, trading within a narrow range this year despite heightened geopolitical uncertainty, the IMF noted in its World Economic Outlook yesterday. In April, they surpassed $71, their highest for 2019, and hit their recent bottom of $55 in August before rebounding back above $60 in September. Initially, prices were pushed higher by the recovery of financial conditions as well as outages in Venezuela and US tensions with Iran. But in late spring a weaker global economy raised a concern about the strength of global oil demand, which was amplified by a buildup of US crude oil stockpiles.

Supply outages and geopolitical tensions, however, masked the oil demand weakness and, so, temporarily supported prices. Venezuela suffered production loss after a power outage in March and Russian oil exports were partially halted in May because of pipeline contamination. Although these outages were temporary, they helped balance the market, resulting in lower US inventories in early spring.

On the demand side, weaker global economic fundamentals have contributed to lower prices. The IMF's October a downward revision of the global growth forecast—by 0.3% to 3% and by 0.2% to 3.4% for 2019 and 2020, respectively, from its April forecast—illustrates a slowdown in global activity, driven in particular by emerging markets and the euro area. In line with this slowdown, the International Energy Agency revised its oil demand growth forecast as of September for this year down to 1.1 mbd from 1.4 mbd in February.

As of late September 2019, oil futures contracts indicate that Brent prices will gradually decline to $55 over the next five years. Baseline assumptions, also based on futures prices, suggest average annual prices of $61.8 a barrel in 2019—a decrease of 9.6% from the 2018 average—and $57.9 a barrel in 2020 for the IMF's average petroleum spot prices. Despite the weaker demand outlook, risks are tilted to the upside in the near term but balanced in the medium term.

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