Oil Markets in 2019

HIGHLIGHTS

• The brutal drop in global financial markets spread into the oil markets and triggered fears of a scenario similar to that of 2014-2015.Brent declined from a high of USD 86.29/bbl on October 3 to USD 58.80/bbl on November 23, that is around 32% in less than two months.
• The slide in the oil markets was triggered by fears of a supply shock caused by an ever-increasing US supply at a time when OPEC producers were ramping up production before the sanctions on Iran took effect, when, at the last minute, President Trump issued oil import waivers for 8 countries some of which are the largest importers of Iran oil.
• The US shale industry has significantly recovered from the 2014-2015 setback and has been increasing production at unprecedented levels while the US rig count is still at around half of the 2014 high.
• Other factors adding pressure on the markets are concerns on the demand side as the IMF lowered its estimate for global growth for 2019 underlining the fragile position of emerging markets, which are key drivers on increases in oil demand.
• The outcome of the OPEC meeting in Vienna next month and the position of the Russians will be key in determining the direction of the oil markets, but overall the risk in the next few months seems to be strongly skewed to the downside.