According to analysts, three factors will come into effect on the oil market in the second half of 2019. They will determine the demand for black gold, experts believe. Previously, growth drivers were US sanctions against Iran’s oil sector, rising tensions in the Persian Gulf and the threat of recession in the global economy. Now, market participants should pay attention to something else.
1) Trade relations of the United States and China
Experts consider the current progress in the negotiations of the two superpowers as the main driver of oil prices. He has a significant impact on the mood and market prospects, experts believe. They believe that even a small hint at improving or worsening trade relations between the United States and China can change the direction of oil prices. At the same time, analysts believe that one should not hope for an early resolution of the conflict. However, the results of the negotiations will become the most important factors to determine global economic sentiment and forecast demand for raw materials. In the event of a settlement of the trade conflict in 2019, we should expect an increase in the cost of black gold. Rising oil prices will be a positive sign for the global economy and energy demand, experts believe.
2) Worldwide oil production and US exports
After analyzing the recent information from the Energy Information Administration (EIA), experts recognized the US petroleum industry as the second main driver of commodity prices. According to the EIA report on June 27, America achieved record oil exports of 9.4 million barrels per day and a decrease in reserves by 12.8 million barrels. The United States continues to actively produce oil and if their reserves start rising again, prices will decline. The US authorities are perplexed by improving the oil infrastructure, including the pipeline network. This will help minimize the cost of pumping large volumes of oil to refineries and export terminals. According to the EIA report, the Achilles heel of the US oil industry is only a relatively weak refinery load. This indicator is very important for market players attention should be paid to it in the second half of 2019. If US refineries do not operate at full capacity, this means that either they are expecting a reduction in the demand for fuel or lacking in certain grades of oil required for production at affordable prices.
3) OPEC and independent oil producers
The third vector, which sets the direction for the oil market in the next six months, experts consider the actions of OPEC +. Early next week, July 1-2, a meeting of the countries of the cartel is expected. According to its results, it will be clear what to expect from the world’s largest oil producers in the second half of the year. The US sanctions against Venezuela and Iran have reduced the total production of OPEC by several times. However, the further development of the situation depends on other major oil producers, such as Saudi Arabia and Iraq.
Saudi Arabia still produces less than its quota, but is able to increase production in the second half of 2019. Aramco, the national oil company, recently agreed to supply a significant amount of raw materials to South Korean refineries. She also plans to expand her activities in India. If the kingdom increases production and exports to ensure these consumers, oil prices may fall, analysts say. Also, Iraq continues to exceed its quota and seeks to increase oil production. Experts recommend market participants to closely monitor production in Iraq. Baghdad will use any opportunity to increase production and export regardless of any decision of the cartel countries.
With regard to Russia, the situation is much more favorable: the country is ready to roll over the current deal. The reason for this was also the recent incident with the pumping of dirty oil through the Druzhba pipeline. In this regard, the Russian Federation had to significantly reduce its own production. However, as soon as Russia settles this issue, it will look for any ways to increase production, even bypassing the OPEC + transaction. The growth of oil production in the Russian Federation is able to put pressure on prices in the second half of 2019, experts reminded.