Oil and gas outlook remains muted in the near term

We expect crude oil prices to remain muted and range-bound in the near term, as the proposed additional cuts by OPEC+ cartel for Q1CY20 will fall short of providing the desirable balance to the global oil market. IEA expects global oil supply to remain in a surplus to the extent of 0.7 mn b/d in Q1CY20 and 1 mn b/d in Q2CY20 before it balances out during 2HCY20 assuming OPEC+ production cuts are extended through the year and oil demand growth recovers.

Near-term supply surplus to remain despite incremental production cut by OPEC+ cartel IEA estimates global oil inventories to increase by 0.7 mn b/d in Q1CY20 notwithstanding reduction in supplies by the OPEC+ cartel. At its recent meet, OPEC+ cartel decided to curtail oil production by an incremental 0.5 mn b/d for a period of three months starting January 2020, taking the total production cut to 1.7 mn b/d. Saudi Arabia agreed to cut production further by 0.4 mn b/d taking the cumulative OPEC+ production cut to 2.1 mn b/d. Overall proposed cuts will imply only 0.5 mn b/d of reduction in oil production from the levels achieved in November 2019, as Saudi Arabia had partly reduced production below its earlier committed levels in recent months. The revised deal has also removed condensate production ceiling of 1.5 mb/d for non-OPEC producers, who may increase it. OPEC+ cartel will meet again in early-March 2020 to review their decision.

Growth in US oil production remains robust for now despite deceleration
The US oil production growth remains robust, despite moderating to 1.1 mn b/d currently from 1.9 mn b/d at start of CY2019. Nevertheless, IEA estimates overall liquids production in the US to grow by 1.1 mn b/d in CY2020; EIA estimates a similar growth of 1 mn b/d in overall liquid production versus an average increase of 1.6 mn b/d in CY2019.

Growth in global oil demand decelerated to eight-year low
The growth in global oil demand is expected to slow down to 1 mn b/d in CY2019, the lowest in the past eight years, led by a moderation in economic growth. IEA is still optimistic of a recovery in CY2020 estimating oil demand to grow by 1.2 mn b/d, predicated on IMF’s forecast of an increase in world GDP growth to 3.4% in CY2020 from 3% in CY2019.

Oil supply to remain in surplus even if proposed OPEC+ cuts continue
We estimate an oil supply surplus of 0.3 mn b/d in CY2020, assuming (i) IEA’s estimates of 1.2 mn b/d of growth in oil demand to 101.5 mn b/d and 2.1 mn b/d of growth in non-OPEC production and (ii) OPEC+ cartel continuing oil production cuts through the year. IEA estimates an oil supply surplus of 0.7 mn b/d in Q1CY20 and 1 mn b/d in Q2CY20 before it declines to ~0.1 mn b/d in Q3CY20 and turns deficit during Q4CY20.