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Oversupply Likely to Hit Oil Prices

Thu, 23rd May 2019

A combination of oversupply and faltering growth could be set to hamper oil prices in 2019, as analysts predict that oil is likely to fall below $70 a barrel once more. Surplus production from the United States, and poor economic growth, could undermine OPEC’s efforts to bolster the markets.

A poll published by Reuters highlights the issues that the oil market is facing. A group of 32 analysts and economists was surveyed, giving their views on the Brent Crude benchmark. Throughout 2018, Brent had run an average of $71.76, but the prediction is that this is unlikely to continue.

The first half of 2019 is, according to one expert, Ashley Petersen of Stratas Advisors, set to be marred by fears of oversupply. The OPEC, and other producers, including Russia, who form OPEC+, agreed recently to cut oil production by 1.2 barrels a day, in order to drain existing stocks and support prices. The markets have already priced in the prospect of production cuts, however, and if the quotas are not adhered to strictly then it is likely that prices will fall rapidly.

The deal is up for review in April, and while most expect that the cuts will be renewed, that may not be enough to support prices given that the US is expected to increase outputs, and global demand for oil is weakening. Oil prices had hit a multi-year high in October, but they are falling again as global consumption of oil is slowing down.

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