Oil prices have recovered since dipping to a low of around $50/barrel at the end of last year after Saudi Arabia and Russia turned on the taps to prevent any supply shock from the impact of US sanctions imposed on Iran in November. But the US ended up providing waivers to eight countries, wrong-footing Opec and its allies and creating an oversupply. Since January, the Opec alliance has stuck to its production-cut deal and will next make a call on their market management strategy in June, with Saudi Arabia leading by example.
How is the oil market viewing the forecast of slower global growth and trade war fears?
The trade war fears feed into the broader narrative around global economic growth and the demand for oil. Global GDP (gross domestic product) is expected to continue to grow in 2019, albeit at a slower pace than in the past two years. While the market has concerns over demand growth, especially around China as the biggest consumer, and analysts have been revising down their forecasts, the bigger demand questions centre around what sort of appetite there will be for Iranian crude if the US takes a harder line than the market expects.
Analysts expect most of the major buyers to receive new waivers but at lower volumes. Platts Analytics sees Iran oil exports falling another 800,000 barrels per day by November 2019. However, a lot rests on China as the biggest buyer and one that has shown an unwavering interest to snap up crude from Opec’s third-biggest producer. Iran has found ways to circumvent sanctions to some degree and that will be one for all those tracking tanker movements to follow closely.
What are the current global demand-supply situation and the inventory position right now? From where do you expect incremental demand (if any)?
According to Opec's latest monthly oil market report, global oil inventories stood at 2.88 billion barrels in January, about 19.1 million barrels above the five-year average that Opec is targeting with its current output policy. The bigger focus should be on the supply side as that is where a lot of the wild cards lie, including Venezuela and Libya. On the demand side, it will be the change in marine fuel regulations, known as IMO 2020, a big factor to watch for. The International Maritime Organization’s decision to cut sulphur limits for bunker fuels to 0. 5 per cent from 3.5 per cent at the start of next year has created much uncertainty for the industry and could push oil prices higher toward the end of 2019.
What is your forecast for the Indian crude basket?
India's appetite for diesel is set to witness robust growth in the second quarter of CY19 as the country votes in its biggest-ever general election in April, prompting refiners to delay turnaround plans, limit exports and build stocks in expectation of a rise in incremental demand. The polls, along with provincial polls in a few states, will provide an impetus to India's diesel consumption as demand for commercial transportation is set to surge over the three-month period. Diesel, which accounts for the biggest share of India's oil products basket, will help drive overall oil products demand growth. Platts Analytics expects India's overall oil products demand growth to be around 235,000 barrels per day in 2019, compared with growth of 200,000 barrels per day in 2018.
How Opec will respond to the developments now?
All indications so far out of Opec are that they don’t want to make the same mistakes of responding too early to the US policy on Iran, and will wait to see what stance the US takes on extending waivers to India, China and South Korea.