Weekly energy recap:China deal should improve oil outlook

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BEIJING/NEW YORK
Crude oil prices traded flat over the week with Brent crude edging slightly lower to $64.85 per barrel and WTI weakening to $58.54.
China was a major focus for traders. On one level, the US-China phase one trade deal injected some optimism into the market, but that was countered by troubling economic data. China’s 2019 gross domestic product rate grew by 6 percent, the slowest in 29 years.
Chinese refineries still processed a record high 13.04 million bpd of crude oil last year, which was an increase of 7.6 percent on 2018. Its 2019 crude oil imports grew 9.5 percent to 10.2 million bpd.
As the US-China trade dispute was the main reason for downward price movements throughout the year, a deal should produce optimism for a revival in global manufacturing, and thus stronger oil demand.
A short-term energy outlook report from the US Energy Information Administration (EIA) was relatively bullish. It also highlighted risk factors including supply disruptions and the pace of global economic growth that could push Brent prices out of the expected $60-$70 per barrel range in 2021.
The EIA expects US oil production growth to slow to 1.06 million bpd in 2020, dropping to 410,000 bpd in 2021 as rig counts stay low. It estimates US oil production averaging 13.3 million bpd in 2020 and 13.71 million bpd in 2021. It expects Brent crude to average $64.83 per barrel and WTI at $59.25 per barrel in 2020.
US oil output growth has dropped from the 1.64 million bpd year-on-year increase in 2018. The IEA does not see any supply risks amid tension in the Arabian Gulf, but points to a sizable buffer against supply disruption because of the strong output and inventories of non-OPEC producers.
This view may be questionable, though, especially given that oil inventories in OECD countries are currently only 9 million barrels above their five-year average — not the biggest of cushions.

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