Oil View: OPEC extends its production cut agreement by another nine months – As expected, OPEC extended its 1.2 million barrels per day (mb/d) production cut agreement of last December by another nine months. Together with its partners, led by Russia, OPEC will maintain current production levels in order to balance its supply to the global demand of oil. As a result, OPEC will lose even more market share to US oil producers. OPEC indicated in its Monthly Oil Market Report that it expects the global demand for oil to rise by 1.1mb/d in 2019. Since US crude production is expected to rise by 2.1mb/d in the same period, OPEC will thus lose market share.
This decision was not a big surprise as President Putin of Russia already indicated over the weekend that he was supportive of a possible extension of the deal. Putin met with Mohammed bin Salman, Crown Prince of Saudi Arabia, during the G20 meeting. As a result, the actual news only gave limited support to oil prices. The upside was capped by disappointing manufacturing data from the US, China and Europe.
Oil price forecasts unchanged, but volatility could rise – OPEC basically met market expectations with the extension of the production cut agreement. Although the confirmation gave some support to oil prices, the move was limited to just a few percentage points. Market focus will shift back again to the other main driver: the US-China trade war. Last weekend a temporary trade truce was announced by president Trump and market sentiment has improved on the back of this. However, our economists think that much of the damage from the trade war has been done. With oil price trading within our expected trading ranges, there is no reason to revise our oil price forecasts at this stage. In reality, both geopolitics and market speculation regarding demand for and supply of oil could change sentiment at any moment. With market liquidity about to drop significantly during the summer period, the risks of higher volatility are on the rise. Please see our latest Energy Monitor for more. (Hans van Cleef)