Brent crude oil may hit $80 by Dec 2019-end: Kang Wu of S&P Global Platts

Global demand is weaker in 2019 as compared to last year but the supply is tighter with substantial declines of oil supplies from Iran as well as Venezuela, Wu said

Trade war fears between US and China and the slowing global growth triggered a sharp swing in oil prices over the past few weeks. DR. KANG WU, head of analytics for Asia at S&P Global Platts talks to Puneet Wadhwa on the side-lines of their annual Commodity Market Insights Forum 2019 on the road ahead for oil prices and the factors that are likely to impact the movement. Edited excerpts:

What’s your outlook for Brent crude oil prices?

With the incoming International Maritime Organization 2020 (IMO 2020), we see a higher demand for sweet crudes. As a result, dated Brent crude prices are likely to be around $80/barrel by December 2019-end. India will continue to source imports from all over the world with the Middle East accounting for over 60 per cent of the import barrel.

How prepared is the industry for IMO 2020?

The refining and shipping industries are gearing up for the incoming IMO 2020 and the market will respond with price signals. We see substantially stronger gasoil demand growth in 2020 for blending and direct use as bunker fuels while the demand for high sulphur fuel oil (HSFO) will drop significantly. As a result, gasoil prices will be pushed up while prices of HSFO are likely to head down toward the end of this year and in early 2020.

How do you think the OPEC will respond to the developments at its meeting in June 2019?

OPEC, particularly Saudi Arabia, plays an important role in the global oil market. OPEC’s goal at present is to balance crude oil supplies with changing demand. If they stick to the current production levels, it is possible that Saudi Arabia may have to hike production to keep prices under check. However, all this is difficult to predict right now.

How is the oil market viewing the forecasts for slower global growth and trade war fears?

Despite the ongoing geopolitical risks, at the moment the market is more concerned with the slowdown of the economy due to the escalating US-China trade war fears and other factors. But fundamentals suggest that oil supply is getting tighter this year because of the substantial drop of Iranian, and to a lesser extent Venezuelan, oil supplies.

Asian product demand growth is expected to average 800 million barrels/day (MB/D) in 2019, down from growth of 910 MB/D in 2018, marking its weakest since 2014 when Brent prices were close to about $100/barrel. Asia is running out of steam as India’s modest demand growth is not enough to cover for China’s slowdown, while growth in Southeast Asia is also slowing.

Do you think demand for crude oil could taper off over the next few quarters from major consumers like China and India?

India’s oil demand will continue to grow while the growth of China has become slower. The weakening of the economic growth, declining car sales as well as the escalating trade war between US and China are some of triggers behind the latter’s lower oil demand growth in 2019 and possibly 2020 as well.

Overall, Asian oil demand will still be heavily dependent on China and India in 2019, with the two countries contributing close to 95 per cent of regional growth. However, Asia will account for only 58 per cent of global growth in 2019, down from 66 per cent over 2011-18. In terms of products, gasoil/diesel will remain as the dominant fuel in Asia and to account for 29 per cent of product demand growth for 2019, followed by LPG and gasoline at 23 per cent and 20 per cent, respectively.

Can you elaborate on the product demand outlook from India?

India's product demand is expected to grow by 200 MB/D in 2019, adjusted down by 40 MB/D since early this year based on recent soft data, and there are headwinds ahead, such as slowing economy, weak vehicle sales and higher fuel prices. Auto sales should recover as the economy improves, coupled with more certainty over new policies and tax rates after the election.

What is the current global demand – supply situation and the inventory position right now?

Global demand is weaker in 2019 as compared to last year but the supply is tighter with substantial declines of oil supplies from Iran as well as Venezuela. The Asia-Pacific region, particularly developing countries in Asia, continues to remain the driver of global oil demand, followed by the US, the Middle East and other developing countries.