A rise in U.S. shale oil output and lackluster global demand will create volatility for oil markets, according to Dan Yergin, IHS Markit’s vice chairman.
“The pipeline bottlenecks are in the process of being resolved, so a lot more oil is going to come onto the market by the end of the year. We expect the U.S. (crude oil output) to be up to 13 million barrels a day. And at least we’re looking right now at fairly weak demand,” he told CNBC’s Hadley Gamble in Abu Dhabi Tuesday.
“We’re in one of the weakest periods since 2008 and we think demand growth this year is under a million barrels per day. So you have that factor at the same time as you have more oil coming to the market. So expect some volatility.”
Yergin projected that benchmark Brent crude, currently trading at $62.86 Tuesday, could stay within the $55 to $65 range.
Yergin said IHS Markit came to its conclusion about lower oil demand growth having looked at weaker manufacturing data. “We see a strong consumer economy in the U.S. but worry about the weakness in the economy.”
The direction of the oil price, which is largely dictated by supply and demand dynamics, is uncertain.
On the one hand, an alliance of OPEC producers and non-OPEC producers (including Russia) decided in late 2016 to curb their daily oil output in order to balance markets following a glut in supply and slumping prices. The U.S., which is now the biggest oil producer in the world, is not a part of that agreement, however, and has seen its oil production surge.
The U.S. Energy Information Agency (EIA) estimates that U.S. crude oil production averaged 11.7 million barrels a day (b/d) in July; it will release August data later on Tuesday. The EIA forecasts U.S. crude oil production will average 12.3 million b/d in 2019 and 13.3 million b/d in 2020, “both of which would be record levels,” it noted in its last monthly outlook.
President Donald Trump’s trade dispute with China, and the mutual import tariffs both country’s have applied, are widely seen as a dampener on global economic growth and the demand outlook for oil. Combine the factors of rising oil supply and lower global demand growth, and the oil price declines.