Oil Prices to $35: Trade Truce Won’t Prevent Glut
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Global Oil Surplus Looms Despite Trade Truce, Threatening 2020 Prices
Table of Contents
Published: December 14, 2019.Updated: December 15, 2019
WhatS Happening: A potential Oil Glut
While attention is focused on the recently announced U.S.-China trade truce, a concerning report signals a potential surge in global crude oil supply in 2020. This surplus could significantly depress oil prices, impacting producers and energy markets worldwide.
The International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) are both forecasting substantial increases in non-OPEC oil production, especially from the United States, Brazil, and Norway. This growth, combined wiht potentially slowing global demand, is the primary driver of the anticipated surplus.
The Numbers: Supply, Demand, and Projected Surplus
The EIA’s Short-Term Energy Outlook, released in December 2019, projects that U.S. crude oil production will continue to climb, averaging 13.7 million barrels per day (bpd) in 2020. This represents a significant increase from the 2019 average of 12.2 million bpd. Globally, non-OPEC production is expected to add approximately 1.7 million bpd to the market.
| Region | 2019 Production (million bpd) | 2020 Projected Production (million bpd) | Change (million bpd) |
|---|---|---|---|
| united States | 12.2 | 13.7 | +1.5 |
| brazil | 2.8 | 3.2 | +0.4 |
| Norway | 2.0 | 2.1 | +0.1 |
| Canada | 5.5 | 5.6 | +0.1 |
Simultaneously, global oil demand growth is expected to moderate, influenced by economic slowdowns in key regions and increasing efficiency standards. The IEA estimates demand growth will be around 1.2 million bpd in 2020, down from 1.5 million bpd in 2018.
Who is Affected? A Ripple effect
A significant oil surplus will have far-reaching consequences:
- Oil Producers: Countries heavily reliant on oil revenue, such as Saudi Arabia, Russia, and Iraq, will face pressure to cut production to stabilize prices.
- U.S. Shale Producers: Lower prices could squeeze profit margins for U.S. shale oil companies, potentially leading to reduced drilling activity and job losses.
- Consumers: Lower oil prices at the pump could benefit consumers, but this is ofen offset by broader economic concerns related to energy sector instability.
- Global Economy: Prolonged low oil prices can contribute to deflationary pressures and potentially dampen investment in new energy projects.
Timeline and Key Dates
December 2019: EIA and IEA release reports forecasting a potential oil surplus in 2020.
January 2020: OPEC+ (OPEC and its allies) are scheduled to meet to discuss potential production cuts.
Q1 2020: The market will closely monitor inventory levels and demand data to assess the severity of the surplus.
Throughout 2020: Oil prices are expected to remain volatile,