Competition Drowning Out Collaboration in 2019

As 2019 stretches out ahead of us, the World Economic Forum will meet this week and is likely to highlight the rise of competition over collaboration between countries, and the implications for the global economy. The global oil market is not immune to these forces. Notwithstanding the “cooperation” represented by the recent OPEC deal, falling OPEC exports and rising US exports will be unsettling this year. Competition in the oil markets is likely to intensify by the end of 2019. That is generally bearish for oil prices.

Libya Unrest Shuts in 300,000 b/d of Crude Oil Output

Armed groups took over Libya’s Sharara oilfield last month, forcing the National Oil Company to shut down production. NOC says it will not restart the field until local security forces are reformed. This will take time, and we expect Sharara production to remain shut in until the summer. Libya will produce just 800,000 b/d of crude oil until the field restarts, down from recent levels of 1.1 million b/d.

Will 2019 Be More Dangerous for the U.S. and China?

Another naval incident in the South China Sea has the U.S. claiming freedom of navigation and China claiming provocation. Military conflict remains unlikely, but relations between China and the U.S. are fraying beyond just the trade war. The continued economic clash with Washington coupled with a Chinese economic slowdown, policy uncertainty in Washington, and the possibility of provocative actions by Taiwan or Japan could precipitate more serious conflict.

OPEC Cuts and Hopes for Impact

The production allocations for OPEC/non-OPEC countries provide a bit more clarity than the December 7th Declaration of Cooperation. The document indicates a cut of 320,000 b/d for Saudi Arabia – smaller than the 450,000 b/d originally implied. On balance, we believe OPEC will get close to compliance. Non-OPEC participants to the deal, led by Russia, are unlikely to comply fully. For more on the market impact see our just-released Global Crude Oil Outlook.

Transport Fuel Demand Continues to Slow

In 2019, European demand for transport fuels will rise after increasing in 2017 and 2018. While this year’s demand growth deceleration was led by diesel, next year gasoline and jet fuel will be largely responsible. However, with demand for all three major fuels continuing to rise and regional throughput slated to fall, slowing demand growth will not prove too bearish.