Will oil demand increase in 2020?

  •   31/01/2020 - 10h30
  •   Adeline HARMANT

If you're one of the traders who take a close interest in the oil market, you're undoubtedly following the forecasts for future demand in this sector in order to anticipate future changes in this asset. We suggest you learn more about this data with Opep's forecast for oil demand in 2020 and our expectations for the price of black gold for this year.

Will oil demand increase in 2020?
Image copyright: anax44 - Flickr

Opep forecasts an increase in oil demand in 2020.

First of all, it should be noted here that OPEC, the Organization of the Petroleum Exporting Countries, recently revised upwards its forecasts for oil demand in 2020. The organization bases its forecasts primarily on the optimistic outlook for economic growth.

Thus, OPEC indicates that demand growth is expected to reach 1.22 million barrels per day compared to 2019. Global demand is expected to increase from 99.77 mbpd in 2019 to 100.98 mbpd in 2020.

World economic growth is expected to accelerate by 3.1% in 2020, i.e. 0.1 point more than the previous forecast and a 3% increase in 2019, thanks in particular to an environment of low interest rates that supports growth.

However, it should also be noted that the supply forecast has also been revised upwards by OPEC, which is now expecting an increase of 0.18 mbj this year, taking into account the increased activity in some countries such as Mexico, Norway or Guyana. For their part, the OPEC countries and their allies such as Russia have undertaken to reduce their production in order to support prices by limiting their extraction.

It should be recalled that during December 2019, total crude oil production from OPEC's share decreased by 161,000 barrels per day compared to November and with a quota of 29.44 mbpd. Saudi Arabia was the largest contributor to this decline, being the largest producer and the leader in this sector with a decline of 111,000 barrels per day.

 

How is the price of oil likely to behave?

Faced with this expected increase in world oil demand, we can now ask ourselves what the price per barrel will be in 2020.

Recently, the price of a barrel of WTI crude oil has indeed crossed the $70 threshold, in particular because of fears about the conflict between Washington and Tehéra. It then stagnated for some time before moving downwards again, this time due to fears of a drop in demand as a result of the Chinese coronavirus epidemic. Several elements remain to be monitored in order to effectively anticipate changes in the price of this asset in 2020 and here are the main ones:

  • The geopolitical risks are of course to be watched with the conflicts between the United States and certain countries in particular and fears about the still tense situation in the Middle East.
  • The loss of growth of shale oil in the United States is another element to watch out for. Producers of this type of oil are currently revising their production forecasts downwards, which could benefit black gold.
  • Finally, upstream investment by the oil industry will be closely monitored and compared with global growth. Indeed, although the world's major powers have announced their intention to reduce their use of fossil fuels, demand for oil continues to rise, as recently announced by OPEC. On the other hand, there has been an increase in investment in upstream oil, as the major oil companies plan to invest more than $5 trillion in exploration alone. Even as investment in shale oil declines, these new investments could take time and it should therefore be difficult to meet global oil demand by 2020.

There is therefore a strong likelihood that the price of oil will rise mainly in 2020.