The International Monetary Fund (IMF) recently released its 'World Economic Outlook' report for October where it slashed its global growth projection to 3.0% this year (from 3.2% forecast in July) before rebounding to 3.4% (downgraded from its July forecast of 3.5%) in 2020.
As a result, the IMF also estimates that crude oil prices would drop by 9.6% this year from an average price of US$68.33 per barrel in 2018 to US$61.78 this year and by another 6.2% to US$57.94 in 2020. This makes sense. Lower global growth translates into less demand for oil.
Note that the IMF's oil price forecast is based on the "simple average of prices of UK Brent, Dubai Fateh, and West Texas Intermediate crude oil".
I don't have data for Dubai Fateh but this year to date, the average price of WTI and Brent oil is US$60.50 - still within the realms of the IMF forecast - suggesting that the deepening slowdown in global oil demand has more than negated the production cuts implemented by the Organisation of the Petroleum Exporting Countries (OPEC), Russia and other oil producers.
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The grouping cut oil output by 1.2 million barrels per day (mpd) starting 1 January 2019, originally planned to expire on 30 June this year, was later extended for another nine months to March 2020.
The persistent weakness in oil prices, notwithstanding intermittent rallies due to supply disruptions - the latest of which was the drone attack on the 14th of September on Saudi Arabia's Abqaiq oil-processing plant - has the OPEC et al again ruminating on further cuts in production.
Reuters quoted an OPEC source saying: "In December we will consider whether we need more cuts for next year. But it is early now, things will be clearer in November" and that "they want to make sure that countries like Nigeria and Iraq reach 100% compliance first as they have promised".
But even with deeper cuts and 100% compliance from all involved, the International Energy Agency (IEA) predicts increased supply in 2020 "when non-OPEC supply growth, led by the US, Brazil and Norway, accelerates from 1.8 mb/d to 2.2 mb/d, reducing the call on OPEC to 29 mb/d".
At the same time, the IEA forecasts global oil demand to decline by 1.2 mb/d in 2020, keeping the supply-demand equation in favour of continued weak crude oil prices.
But this isn't all negative as lower oil prices would provide a tailwind to economic growth in terms of increased household disposable income and consumer spending, and lower business input costs, increasing margins and profits that ultimately spur higher business investment in plant, equipment, and staff.