Declining Demand to Influence Future Energy Production
October 28th, 2019
Crude oil and refined products prices closed slightly higher on Friday with WTI crude oil up 5% on the week. Helping to support prices on Friday was the large drop in US crude oil rig count, continued optimism of a US and China trade agreement, falling use crude oil and refined products stocks this past week and the talk from OPEC+ about more production cuts.
Baker Hughes reported that crude oil rigs fell by 17 to a total of 696 rigs the lowest level since April of 2017.
Industrial profits in China fell 5.3% in September from a year ago. Oil, coal and other fuel processing industries have taken the biggest hit in China, taking a 53.5% decline in profits from January to September. The lower profits suggest that China’s a slowing of the global economy and that the US and China trade war is having an impact. These factors raise the concerns about lower global energy demand.
OPEC because of the concerns about lower demand continues to talk about additional production cuts. This will be discussed at the next OPEC meeting in December and could begin in March 2020.
Goldman Sachs maintained a neutral view on commodities, noting that a loss in supply due to geopolitical factors and lower investment has offset declining demand.
The decline in demand and the loss of production will be factors that determine energy price direction moving forward. Many analysts see a deal for the phase 1 portion of the China and US trade agreement as have a big impact on wiping away some of these concerns. The trade deal continues to be a big factor for the global economy and with it energy demand. Throw the IMO 2020 deadline into this mix and these will all be critical factors on where energy prices are headed.
The International Monetary Fund (IMF) says Iran would need an oil price of $195 per barrel to balance its budget.
The US Trade Representative’s office said the US and China are “close to finalizing” some parts of an agreement following high-level telephone conversation on Friday.