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Oil: New year, same uncertainty

01/02/2020 | 10:24am

After five months of monotony, oil markets are coming out of their torpor. The OPEC+ has decided to increase the current production cuts by 500,000 barrels per day. This agreement brings the volume of oil withdrawn from world supply by the signatory countries to 1.7mbd (million barrels per day) in the first quarter of 2020. The market will be attentive to the respect of these new quotas, especially the performance of Russia, whose production reached a post-Soviet record last year. The Saudi Kingdom is exemplary with an average production of 9.83 mbpd in December and remains on track to reach its new production limits of 9.7 mbpd from today.  In addition to these good supply-side prospects, there is also hope on the commercial front and indirectly on the growth in demand for crude oil.

The conclusion of a minimal agreement between Beijing and Washington is seen as promising an improvement in global economic growth, an essential condition for a sustainable equilibrium in the oil market; As a result, the prices of the indices have clearly recovered over the last few weeks. However, it must be said that progress remains modest and that operators are not succombing to euphoria. This is due to the report by the International Energy Agency (IEA), which expects an increase in the supply/demand imbalance, despite the efforts of the oil cartel and its allies. Uncertainties will set the pace for the year 2020, namely the growth in demand for oil, but also the dynamics of American production, which is approaching the 13 mbpd mark as the United States becomes a net exporter of oil (and oil products).

On the geopolitical front, while tensions have eased on the Turkish-Syrian border and in Yemen, they could well intensify in Libya .Fighting between pro-Haftar forces and those of the Government of National Unity (GNA) is intensifying and moving closer to the capital, while Turkey is said to be ready to intervene militarily in support of Tripoli (the Turkish Parliament has ratified a motion authorising the deployment of troops in Libya). More recently, the recent attack on the U.S. embassy in Baghdad by pro-Iranian demonstrators has further strained relations between Washington and Texas. Technically, on a weekly basis, no clear trend is evident despite the strong year-on-year advance in crude oil prices. The price of Brent  faces a serious obstacle, approaching USD 68, a level that held up well in July and September 2019. A pause is likely under this line and only its crossing would free up a potential upward movement towards USD 70 .

Jordan Dufee
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