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Yergin: Expect Extreme Volatility In Oil Markets Rising pipeline takeaway capacity in the Permian and global oil demand growth at its weakest in a decade are set to lead to more volatility in oil prices in the near term, a prominent energy expert said, joining a growing number of analysts who see prices further depressed by slowing economies and crude demand.
While U.S. production will continue to add more supply in an already oversupplied global market, on the demand side, expectations are getting increasingly pessimistic.
Despite expectations of volatility, IHS Markit’s vice chairman sees Brent Crude prices range-bound in the US$55-65 range. Yergin is not alone in predicting substantially lower oil demand growth this year than originally anticipated. The International Energy Agency (IEA) revised down its demand growth estimates for 2019 in its latest Oil Market Report, by 100,000 bpd to 1.1 million bpd, after seeing that between January and May demand growth was just 520,000 bpd, the lowest increase for the period since 2008. Several Wall Street investment banks have already warned that the escalating U.S.-China trade war raises the odds of an economic slowdown and subsequent low oil demand growth. Some banks have already cut their oil demand growth estimates for this year, saying that oil demand could grow at its slowest pace in at least half a decade. In July, Barclays cut its oil price forecasts for the second half of 2019, saying that demand growth would be just over 1 million bpd this year. Barclays revised down its forecasts by US$2 to US$69 per barrel Brent Crude and US$61 per barrel WTI Crude. In August, Morgan Stanley said that demand growth continues to soften amid slower economic growth and cut its forecasts for Q3 and Q4 2019 for Brent Crude to US$60 from US$65 per barrel, and for WTI Crude to US$55 from US$58 a barrel. This week, Goldman Sachs revised down its oil demand growth estimate to 1 million bpd, down by 100,000 bpd from the previous outlook.
In its Short-Term Energy Outlook (STEO) published on Tuesday, the EIA also cut its global demand growth estimate for 2019 to 900,000 bpd, down by 100,000 bpd from the August forecast.
It’s not only demand that will weigh on oil prices for the rest of the year—supply out of the U.S. is expected to increase with reduced takeaway constraints from the Permian to the U.S. Gulf Coast. The Cactus II crude oil pipeline added an estimated 670,000 bpd and the EPIC Midstream natural gas liquids pipeline, which was repurposed for crude oil, added another 400,000 bpd capacity, EIA said. Thanks to Cactus II and EPIC, outbound shipments of crude oil from Corpus Christi surged to a record in the first week of September, RBN Energy said on Monday, noting that the data may be “suggesting that the expected surge in exports of Permian oil is finally occurring.” Should the “surge in export volumes continue to build in the weeks ahead, the crude-oil export infrastructure at Corpus may finally get the benefit of the doubt,” RBN Energy said. Yet, a growing group of analysts believe that U.S. shale production growth will considerably slow down for the rest of the year, giving oil bulls hope that the global oversupply concerns could be overblown. Supply and demand issues and the unpredictable nature of the ongoing U.S.-China trade war are setting oil prices for an extended period of volatility.
Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
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