Oil price movement and key influences through Q4 2019

• DOI: http://doi.org/10.1111/oet.12754
• Published date: 01 January 2020
• Date: 01 January 2020

EDITORIAL

Oil price movement and key influences through Q4 2019

1|OCTOBER

There was a rise in prices through the fourth quarter of

2019, from just under $58/bbl for front month Brent at

the beginning of October—the lowest level since mid-

August—to $66/bbl at the end of December. Sentiment

began the quarter relatively depressed, with the market

focused on concerns over trade and economic growth,

which were dampening oil demand and leading to cuts in

oil demand growth projections. In particular, the latest

Chinese economic growth numbers were below expecta-

tions, with third quarter GDP up just 6% year on year—

the lowest for many years.

The refinery maintenance season in North America

also cut demand for crude, which pushed stocks higher.

In the first week of October, US crude inventories

climbed 9.28 mn bbl to 434.85 mn bbl, according to the

EIA, putting downward pressure on prices. At this point,

crude stocks had risen 19 mn bbl over the previous

5 weeks, as US refiners reduced throughput by roughly

2 mn bpd.

On the supply side, Saudi Arabia informed the market

that output had fully recovered and stocks were being

replenished following the September drone attack on oil

infrastructure around Abqaiq and Khurais, which

removed any lingered doubts over the possibility of dis-

ruption to Saudi exports. Elsewhere, continued US oil

production growth was being offset by reduced output

from sanctions-hit Iran and Venezuela. OPEC compli-

ance with output quotas remained good overall in

September, helped by a 1.28 mn bpd cut in Saudi output

due to the drone strikes, according to OPEC.

Prices saw little movement through early October, but

then half-way through the second week, levels jumped,

moving above the $60/bbl mark. This was largely due to

the United States and China announcing a resumption of

trade negotiations on Thursday 10, followed by the

announcement of a partial agreement on the Friday, cov-

ering agricultural purchases, financial services, curren-

cies, and IP. Support also came from an announcement

from OPEC, Russia and their allies that they had not

ruled out deeper crude output cuts when they next meet

on 5 to 6 December in Vienna.

US crude stocks rose again in the second week of

October as refinery maintenance gathered pace. US

refiners cut operating rates to 83.1% of capacity for the

week ended 11 October, down from 95.1% for the week

ending 6 September, according to the EIA. This helped

push US stocks up more than expected, leaving them at a

2.7% surplus to the five-year average.

At the beginning of the third week crude fell back,

dipping below $60/bbl on the Monday and staying in the

high $50s all week, partly on doubts over the previous

week's United States/China trade deal. Typhoon Hagibis

closed refineries in Japan, backing up crude deliveries

and cutting gasoline demand, which, along with another

rise in US crude inventories, helped dampened crude

market sentiment.

In the fourth week, prices rose steadily as attention

switched to supply concerns, largely around US onshore

output growth, which is finally showing signs of slowing.

Concerns were also raised about non-OPEC output gen-

erally, given the lengthy period of low investment and

falling E&P equity values. Brent ended the week at

almost $62/bbl, on support from a surprise draw in US

stocks (breaking the 8-week rise) and further indications

that OPEC and its allies may be considering deeper/lon-

ger output cuts.

The final week of October began with steady prices,

before they dipped midweek to just over $60/bbl on a US

crude stock rise and more disappointing economic news,

along with another downgrade in IEA oil demand fore-

casts. Output of almost 400 000 bpd from Norway's new

Johan Sverdrup field by December—well ahead of

schedule—was also bearish.

2|NOVEMBER

Brent began November at just under $62/bbl, with mar-

ket attention firmly fixed on whether or not the United

States-China trade talks would be resolved. There were

rumors of progress, but also concern that if no resolution

could be found, then a further 15% US tariff would be

applied to another $160 bn of Chinese goods in early

December. Improved trade relations between the United

States and China are seen as bullish for world economic

growth, which in turn should support higher global oil

demand—and higher oil prices.

The trade negotiations looked to be progressing well,

and by November 7, January Brent reached $62.29/bbl.

Equity markets also moved higher on the reports.

12 EDITORIAL