Expect Oil Price at $65-70 a Barrel in Second Half

• According to experts, in the second half of the year due to IMO 2020 regulations, crude oil is expected to be priced at $65-70 a barrel.
• All geopolitical factors, US-China trade tension are starting to have some impact on overall demand.
• Experts are looking for ways to see how they can balance the supply to the marketplace in order to make sure that the global inventories do not climb to very high levels.

According to an excerpt published in Economic Times, in the second half of the year, the IMO 2020 regulation on sulphur or bunker fuel by the shipping industry, will force the refiners to switch to use finer crude.

Moreover, that is going to support the price for Brent being slightly higher than where it is now, says Calvin Lee, Editorial Director, Asia & Middle East Oil Markets, S&P Global Platts, in an interview.

Edited excerpts

Let us begin by talking about OPEC statement which indicates the possibility of extension of the output cut deal. Now with Iran supply getting cut off, are we still looking at an extension?

What we are seeing and hearing from the market is that there is a suggestion that OPEC, as well as non-OPEC countries, are expected to extend the agreement that they have in place. Heavy crude prices are showing a really strong market structure. For Brent, the market is showing or demonstrating the value that there is an expectation that the agreement will be extended.

How is the supply currently looking now that you know Saudi and other OPEC countries have cut production plus there is no Iran oil is there in the market?

OPEC is looking at it in terms of increased crude oil production from the US. The US is now producing at very high 11 million barrels per day level and they are exporting substantial volumes. Demand is also really starting to weaken this year, All the different geopolitical factors, US-China trade tension are starting to have some impact on overall demand. They are worried on one hand of increased supply coming to the global market and on the other hand, demand coming off earlier projected level.

They want to see how they can balance the supply to the marketplace in order to make sure that the global inventories do not climb to very high levels.

We are concerned about lower oil demand, especially if global growth is slowing down?

This year even without those factors in the background that China, for example, would not be growing at such high rates that they have been growing in the past, the overall demand from China as well as greater Asia is expected to ease this year.

There are countries within Asia such as India which will see a modest increase in demand growth but that is not enough to balance the drop in demand from other countries such as China and now with this US-China trade tensions, bigger bite may go out of China’s overall demand for this year and possibly going into next year as well right.

It is really starting to worry about the oil market from the demand perspective. Supply is fairly healthy but the focus now is really on demand and Asia. But if China’s economic growth starts declining, whether that is going to impact all the other secondary economies that depend on China for trading is one of the main factors that will impact all the global crude oil markets.

At the beginning of the year, the markets were expecting $75, but now the oil price is at $62. How should one go ahead and look at targets of Brent?

Our analytics group has made a forecast for Brent to be around $65 to $70 a barrel for the second half of the year and it is true that there are a lot of factors out there which could potentially have an impact on global crude oil price. That has been very volatile in recent months and the markets are sort of edgy and nervous about how geopolitical concerns, security issues as well as trade tensions.

If these factors start to have a negative impact on the global economy, then that is really going to down to their demand for oil. As such, oil prices have been very volatile in recent months. So, the markets will react to any news that could indicate weaker demand going forward.

But in the second half of the year, with the IMO 2020 regulation on sulphur or bunker fuel by the shipping industry, will force the refiners to switch to use finer crude more and that is going to support the price for Brent being slightly higher than where it is now.

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