Oil Price Fundamental Daily Forecast – IEA Sees Oversupplied Market, OPEC Forecasts Deficit

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday shortly before the regular session opening. The catalyst behind the rally is a forecast from OPEC calling for a supply deficit next year. This potentially bullish news somewhat offsets this week’s surprise inventory builds reported by the American Petroleum Institute and U.S. Energy Information Administration.

At 10:52 GMT, February WTI crude oil is trading $59.00, up $0.35 or +0.60% and February Brent crude oil is at $64.33, up $0.61 or +0.96%.

Before you get too excited about crude oil’s upside potential, the International Energy Agency (IEA) followed up the OPEC news by saying global oil inventories could rise sharply despite an agreement by OPEC and its allies to deepen output cuts as well as lower expected production by the U.S. and other non-OPEC countries.

International Energy Agency Forecast

CNBC reported:

“Despite the additional curbs…and a reduction in our forecast of 2020 non-OPEC supply growth to 2.1 million barrels per day (bpd), global oil inventories could build by 700,000 bpd in Q1 2020,” the Paris-based IEA said in a monthly report.

OPEC, led by de facto Saudi Arabia, and other producers including Russia agreed last week to rein in output by an extra 500,000 bpd in the first quarter of 2020 in order to balance the market and buoy prices, but stopped short of pledging action beyond March.

Even if the group adhered strictly to the new pact and output from members beset by political troubles like Iran and Venezuela stayed steady, the IEA said only 530,000 bpd of crude would be withdrawn from the market compared to November production.

The IEA revised down its forecast for supply growth by non-OPEC countries in 2020 by 200,000 bpd “on a continued slowdown in the U.S., reduced expectations for Brazil and Ghana as well as additional cuts by OPEC’s allies”.

The biggest reduction is expected to be in U.S. shale output, where operators have been cutting spending under investor pressure to improve returns.

The IEA estimates total U.S. oil production growth will slow to 1.1 million bpd in 2020 from 1.6 million bpd this year.

OPEC Revises Forecast on Balance Next Year

OPEC on Wednesday said it now expected a small deficit in the oil market in the next year, suggesting the market is tighter than previously thought – even before the latest pact with other producers to curb supply takes effect.

The revised forecast by OPEC marks a further retreat from a prediction of a glut in 2020 as U.S. production growth begins to slow.

Daily Forecast

OPEC and the IEA appear to be at odds about supply in 2020, however, the focus for investors at this time is really on future demand growth. Helping to generate concerns about demand growth is the lingering battle between the world’s two biggest economies – the U.S. and China.

U.S. President Donald Trump is expected to discuss tariffs on Chinese goods set to be imposed on December 15 with top trade advisers as markets brace for fallout in China’s reaction.

The markets are expected to rally if a trade deal and/or a tariff delay is announced. Prices could break sharply if the U.S. decides to move forward with the new tariffs on Chinese imports.