Shifting oil prices predicted as outside forces put supply under pressure

INDEPENDENT Consumer and Competition Commission (ICCC) is of the view that crude oil prices will continue to shift for the rest of the year through to next yeafr, but gently towards a downward path.

Making reference to a short-term forecast from Oil Crude Price.Com, the ICCC said global crude oil price could average US$64.93 (K213) per barrel in 2019 and US$65.19 (K216) per barrel in 2020.

Commissioner and chief executive Paulus Ain said PNG did not have any influence in the international oil market.

Therefore, any developments in relation to the global supply and demand of oil will have an impact on future oil prices and eventually on the movements of retail fuel prices in the country. Ain said Opec bloc had long dictated global crude oil prices, while the US emerged over time as a significant producer of shale oil.

In recent years, oil production from the US has risen sharply, surpassing Russia and all other oil-producing countries.

“In May 2018, the United States pulled out of the 2015 Iran Nuclear Deal, subsequently targeting Iran with economic sanctions that affected the country’s energy sector, and further restrained other countries from trading with it,” Ain said.

“By October, the US granted waivers to eight countries to resume import of Iranian oil but then, Iraq already had a huge stockpile of oil inventory. “These political measures pushed up crude oil prices to a peak of US$82 (K273) per barrel in Sept 2018; as Opec countries and Russia continued producing high volumes.

“By Oct 2018, the global oil market was saturated with excess supply, mostly from Iran and the US.

“The supply glut caused a dip in crude oil prices in the last quarter of 2018, forcing prices to fall significantly, from an average high of US$82 (K273) per barrel in October down to US$50 (K166) per barrel in December.

“To drive up oil prices, Opec and Russia (OPEC+) made an agreement in Jan 2019 for member countries to reduce crude oil production to 1.2 million barrels per day (bpd) through to June. “The Opec-backed supply cuts have led to price increases in the early months of 2019, and markets have been further tightened by US sanctions against oil exports from Venezuela.

“However, the strong responsiveness of shale oil from US to patch up the supply gap apparently has kept global prices within a narrower band than has historically been the case.”

Ain said currently, the Opec-led bloc looked set to continue supporting prices with ongoing production cuts, instead of fighting for market share, which would practically give more incentives to US shale producers to counter OPEC-led production cuts by setting higher production records. This would ultimately compel the alliance to reconsider their position on supply cuts, as most of their own members also had higher reserves of supplies building up.

“Due to volatility in the oil market, it is difficult to precisely forecast the retail fuel price movements,” Ain said.

“However, based on the short-term projections in oil price movements as provided above, the ICCC is of the view that crude oil prices will continue to fluctuate in the remaining months of 2019 through to 2020 but gently towards a downward path.”

Ain said these price movements would mainly depend on the on-going geo-political tensions between US and oil-producing economic countries, the demand and supply of oil, and the other aforementioned factors.