Negative Emerging Markets Outlook Could Hammer Oil Demand In 2020

Forbes Finance 15 hours ago

Much of the current oil market discourse appears to be fixated on the supply dynamic, moves of the 14-member oil producers' group OPEC and its 10 non-OPEC allies in that context, and a possible impending glut.

The International Energy Agency (IEA) which has continually reminded the market about a possible flood of non-OPEC barrels, not just from the U.S., but Brazil, Canada, Guyana and Norway as well.

But an overt focus on the supply-side, whether intentional or otherwise, seems to detract attention from where oil demand growth might be heading in 2020. The direction of global demand is far from certain with the U.S.-China trade spat showing no signs of an immediate settlement, uncertainty over how Brexit will unfold, and a slowdown in German economic activity.

Toxic Air in India Worse Than Singapore Haze Tests Green Pledges
Traffic in India: Negative emerging markets outlook could hammer oil demand In 2020 Photo: Kuni ... [+] Takahashi/Bloomberg

Alongside all of this is another macroeconomic concern that cannot be ignored, according to rating agency Moody's – a worrying outlook on the very emerging markets considered the main drivers of oil demand growth.

In fact, growth in key emerging markets slowed significantly in 2019, and the agency’s outlook for 2020 has tipped over to negative due to uncertainties surrounding "trade, politics and policy."

Of course, individual emerging economies may have different degrees of exposure to each of these uncertainties, since the grouping encompasses a broad range of countries across Asia, Latin America, Eastern Europe, Middle East and Africa, but Moody’s says the overall picture is not one to be optimistic about.

"Although recession risk is in focus globally, we do not expect a recession to materialize in any of the larger emerging market economies except in Argentina," says Moody's Senior Vice President Gersan Zurita.

"Emerging markets will continue to have higher growth than developed markets with an expected average economic growth above 4.5% in 2020, compared with just under 1.5% across the largest advanced economies in 2020. However, growth rates are well below their historical averages, particularly in larger economics like Mexico, Russia, India and China."

It is a curious mix – Mexico and Russia are major crude exporters, while India and China are two of big three global crude importers. With the exception of India, all three economies faced challenges in 2019. Now even the Indian economy is showing signs of strain after a heavier than usual monsoon season dented economic activity in 2019.

Market consensus is that global crude oil demand growth might well end up averaging ~1.1 million barrels per day (bpd) in 2019, resulting in demand averaging just north 100 million bpd. Uncertainties pertaining to emerging markets, especially challenges associated with China's domestic re-balancing, coupled with elevated recession risks in Europe and the U.S. do not augur well for 2020.

IEA forecasts global demand growth for 2020 at 1.2 million bpd, and OPEC puts it at 1.4 million bpd. Based on the global macroeconomic challenges, and in the absence of a speedy resolution of the U.S.-China trade spat, both projections appear optimistic. In fact, demand growth could come in as low as 0.7-0.8 million bpd; near the bottom end of a range that emerged in recent Reuters poll of 42 market economists and analysts.

If, as the IEA predicts, non-OPEC oil production growth will come in at around 2.3 million bpd, in the most negative scenario, that could be three times over demand growth levels for 2020. It all points to the one thing – no matter how deep production cuts instituted by OPEC and its Russian-led allies are, price support to fire up oil prices would be hard to come by if economic activity remains as lackluster as is currently feared.

Tags: Money

Source link
Read also:
The New York Times › Finance › 1 month ago
Oil prices eased on Monday amid persistent concerns about the global economic outlook and the impact on oil demand, while Russia again missed its target to cut oil output last month.
Reuters › Finance › 1 month ago
Emerging market stocks and bonds, assets deemed as more high-risk, are likely to benefit in a world of negative interest rates, Max Life Insurance's chief investment officer said.
One America News Network › Finance › 1 month ago
By Roslan Khasawneh SINGAPORE (Reuters) - Oil prices eased on Monday amid persistent concerns about the global economic outlook and the impact on oil demand, while Russia again missed its target to
CNBC › 1 month ago
Oil markets are expected to face excess supplies in 2020 due to a production boost amid weak demand growth, the director for energy markets and security at the International Energy Agency said Tuesday.
Reuters › Finance › 3 weeks ago
Moody's Investors Service cut India's ratings outlook to "negative" from "stable", citing increasing risks that Asia's third largest economy will grow at a slower pace than in the past, sending stock markets nearly 1% lower at Friday's close.
The New York Times › Finance › 1 month ago
Oil prices eased on Monday amid persistent concerns about the global economic outlook and the impact on oil demand, while Russia again missed its target to cut oil output last month.
Reuters › Finance › 1 month ago
Oil prices eased on Monday amid persistent concerns about the global economic outlook and the impact on oil demand, while Russia again missed its target to cut oil output last month.
One America News Network › Finance › 1 month ago
(Reuters) - S&P Global Ratings lowered its outlook for Boeing Co to "negative" from "stable" on Tuesday, after reports that the planemaker may have misled the U.S.
The New York Times › Finance › 1 month ago
S&P Global Ratings lowered its outlook for Boeing Co to "negative" from "stable" on Tuesday, after reports that the planemaker may have misled the U.S. Federal Aviation Administration about problems with the anti-stall software on its grounded 737...
RT › Finance › 3 weeks ago
International ratings agency Moody’s has changed its outlook on India from stable to negative, citing increasing risks that economic growth of Asia's third-largest economy will remain “materially lower than in the past.” Read Full Article at RT.com
Sign In

Sign in to follow sources and tags you love, and get personalized stories.

Continue with Google
OR