Gradual Upward Trend Shouldn’t Lead to a Steep Downward Decline

Summary:

* Wondering about the latest IEA downward revision in oil demand growth. Earlier, IEA outlook overlooked the upward revision when oil prices plummeted in early 2016.

* Brent price deteriorated from $80/bbl to $75/bbl … a steep decline after 18 months of gradual upward momentum isn't a price correction!

* Easing output cuts to stabilize oil markets or to ease consumers anxiety?

* Output cuts easing is needed amid bullish oil outlook and tight oilmarket.

Some market participants called it a price correction when it took 120 days for oil prices to move from $70/bbl to $80/bbl, while it took less than a week to fall from $80/bbl to75/bbl, the steepest weekly plunge in almost a year.

Output cuts will be coordinated and implemented to stabilize oil markets and substitute the upcoming supply deficits, as one million barres of gradual output cuts implementation would still leave the market in deficit. Hence, easing output cuts won’t be implemented to ease consumer anxiety amid price rise.

Ironically, once Brent price reached $80/bbl, we started hearing that the market is in turbulence, however, the market wasn’t described so when prices plummeted to $27/bbl in early 2016!

Moreover, IEA made a downward revision in its outlook for global oil demand growth, however, in early 2016 when oil prices plummeted to $27/bbl, IEA outlook haven’t made an upward revision! Yet, hypothetical estimates that demand growth could slow in 2019, put a downward pressure in oil prices despite the robustness of oil demand in both transport and industry sectors, and the rising levels of disruptions that set the stage to further inventories draw-downs.

Dr. Faisal Mrza

@faisalmrza

Energy and Oil Marketing Adviser (Former OPEC / Saudi Aramco)