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Oil and Gas Forecast

Based on a forecast of slowing oil supply growth and mostly stable oil demand growth, EIA expects global oil inventories will fall by almost 0.2 million b/d in 2021. Given the expectation of inventory builds in 2020 and draws in 2021, EIA forecasts Brent prices will average $65/b in 2020 and $68/b in 2021.

The year 2019 was rather a balanced one for oil prices, as the early rise was evened out in the rest of the year. The US-China trade war fueled the global economic slowdown undermined the efforts of the Organization of Petroleum Exporting Countries (OPEC) and its allies to balance the crude market and ramp up oil prices.

Stepping into 2020, the oil industry is on a verge of witnessing a massive shake-up, in the face of the International Maritime Organization (IMO) regulations –IMO 2020– effective from January. Further, the global economic slowdown appears to have bottomed out while oil demand growth outlook has turned upbeat, calling for higher prices next year. The upside potential in oil prices, however, may be limited by a likely US-China trade re-escalation and dwindling Chinese oil demand.

Oil bulls failed to capitalize on Q1 2019 solid recovery following a $35 slump witnessed in the final quarter of 2018. The rest of 2019 saw the prices consolidating in a $15 narrow range, as markets remained divided over global oil demand outlook concerns. These issues have lingered over the 18-month long US-China trade war on one hand and, on the other, over the extension of the OPEC+ oil production cuts.

In December 2018, the OPEC+ reached a deal to take 1.2 million barrels per day (bpd) off the market for the first six months of 2019 to boost the market. In lieu of the output cuts, oil price recovered gradually until April, when it peaked.

Thereafter, the U-turn in price kicked-off but the downside remained cushioned after the OPEC+ decided to extend the supply cuts until March 2020 while the Chinese imports for oil continued to reach record highs.

Among other countries, China, in particular, was the worst hit by the trade tariffs and retaliated strongly, triggering a prolonged trade war that had a massive negative bearing on the global trade and economy as a whole. This was the main factor that curbed oil price recovery. Note that China is the world’s second-largest economy and no.2 consumer of oil.

Also Oil price saw the biggest daily price surge since the financial crisis after the attacks but failed to sustain the rise amid bearish fundamentals.

Towards the end of 2019, crude price headed back towards September highs amid US-China trade deal optimism and OPEC+ agreement on deeper output cuts by an additional 500,000 bpd through to March 2020.

Also EIA forecasts that Henry Hub natural gas spot prices will average $2.33 per million British thermal units (MMBtu) in 2020, down from $2.57/MMBtu in 2019. EIA expects that natural gas prices will then increase in 2021, reaching an annual average of $2.54/MMBtu.