- Oil Prices Close Lower on Monday
Global uncertainty continues to dictate the direction of global oil prices despite OPEC extending production cuts into 2020.
Brent crude oil, against which Nigerian oil is measured, closed at $63.90 a barrel on Monday, down from $65.11. While the US West Texas Intermediate closed at $57.52, down from $58.44.
This was after Gibraltar, a British Territory, seized Iranian supertanker heading to Syria with oil. An event expected to have bolstered oil prices, yet prices closed lower on Monday. Suggesting that there is more to the current situation than just global supply.
Presently, there is U.S sanction on Iran and Venezuela exports, while Libya is in the middle of civil war with little to almost zero oil exports. Again, OPEC and allies have agreed to extend 1.2 million barrels per day cut until March 2020, but still oil prices remained low.
Two factors are likely responsible, weak demand growth and rising US oil supplies.
Weak Demand Growth
Global trade war between the U.S and China has impacted global demand and investment in the energy sector. The tariffs imposed on Chinese exports to the U.S as a result of the disagreement has started hurting growth in the world’s second largest economy and the largest importer of crude oil.
This drop in economic growth weighs on crude oil demand from Chinese firms and subsequent hurt oil nations depending on China for sales.
Investors are more concern about trade war than OPEC strategy, therefore, most are still holding back until there is enough clarity regarding the position of the two nations.
Rising US Oil
According to Goldman Sachs, US crude oil production will outstrip global oil demand this year.
US production is projected to rise by 1.3 million bpd in 2019 and 1.2 million bpd in 2020. While global demand is expected to slow to just 800,000 bpd.
Therefore, despite OPEC extending cuts to the end of March 2020, global supplies may not really change.