Thursday’s tanker attack pushed crude futures up by 4.5 percent in a single session, but the price has since retreated. Perhaps, the only worry now is whether the repeated attacks would increase the cost of insurance of transporting the oil, which is only a small part of the price mechanism for buyers.

The International Energy Agency (IEA) has its estimate for global oil demand growth for the second consecutive month, citing intensifying trade concerns amid fears of a global recession. Analysts are noticing a shift in the market dynamics from supply side risks, such as likely OPEC output cut, to worries about demand growth.

Estimates made in the wake of the rise in crude prices had projected India closing 2018-19 with crude import bill shooting to $115 billion, a growth of 30 per cent over $88 billion for the previous year.

So, the changing dynamics offer good news for producing countries like India, which has been facing the scare of an unbridled flare-up in oil prices with its serious implications on the economy as well as fiscal management targets. There has been a 45 percent price rally in oil price in the first four months of this year. But this has been turned into a 15 percent loss since April.

According to IEA’s outlook for 2020, volatility has returned to oil markets with a dramatic sell-off in late May, seeing Brent prices fall from $70 to $60 per barrel. Until recently, the focus has been on the supply side with the familiar list of uncertainties – Iran, Venezuela, Libya, and the Vienna Agreement – lifting prices.

The agency says that the main focus now is on oil demand as economic sentiment weakens. In May, the OECD published an outlook for global GDP growth for 2019 of 3.2 percent, lower than the agency’s previous assumption. World trade growth has fallen back to its slowest pace since the financial crisis ten years ago, according to data from the Netherlands Bureau of Economic Policy Analysis and various purchasing managers’ indices.

The report listed a number of factors for the current situation: a warm winter in Japan, a slowdown in the petrochemicals industry in Europe, and tepid gasoline and diesel demand in the United States, with the worsening trade outlook a common theme across all regions.

IEA feels that meeting the expected demand growth is unlikely to be a problem. Plentiful supply will be available from non-OPEC countries. The US will contribute 90 percent of this year’s increase in supply and in 2020 non-OPEC growth will be significantly higher, with US gains supported by important contributions from Brazil, Canada, and Norway. Later this month, Vienna Agreement oil ministers, faced with short-term uncertainty over the strength of demand and relentless supply growth from their competitors, are due to discuss the fate of their output deal.

A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock, and the OPEC countries are sitting on 3.2 million barrels per day of spare capacity. This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices. However, this must be viewed against the needs of producers particularly with regard to investment in the new capacity that will be needed in the medium term.

Independent energy research and intelligence company Rystad Energy’s report also confirms that global production of petroleum liquids and biofuels are on track to pass 100 million barrels per day this year, representing an increase of about 2 million bpd from 2018. Also notable in the report is the observation that global production of natural gas liquids has passed 10 million barrels per day, while an additional 5 million barrels comes from refinery gains and biofuels.

“About 5 million barrels per day of global oil production capacity is currently idled for several reasons – less infill drilling offshore, sanctions on Iran, continued instability in Libya, economic collapse in Venezuela, pillage and sabotage in Nigeria and voluntary cuts by Opec and its allies,” says Rystad Energy.

Analysts say that the gradual come-back of this suppressed oil production and resilient growth from US tight oil, combined with reduced oil demand due to trade conflicts, is forecast to put a firm lid on oil prices for a couple of years.(IPA Service)