Here John Kicklighter at DailyFX has used the company’s new interactive Global Commodities tool to look ahead. This is what we can expect in 2020:
1. Global trade disruptions may affect immediate demand
While the trade war has become a hot topic, the concerns of nationalism are leading long-term investors to wonder if global demand may drop without trade growth seen in prior years, which could hurt the long-term demand for oil and its price.
2. Long-term demand from environmental regulations could see the market bifurcated
Oil market insiders have long been aware of the IMO 2020, which is effectively maritime energy standards and is set to be the most significant change in environmental standards on record. While the focus is on shippers using lower sulphur grades and pushing up the demand and price of cleaner forms of energy, naturally, global trade disruptions, trade frictions or the lack thereof, can act as a multiplier on the impact of this measure.
3. The rise of alternatives will likely continue to weigh on oil’s dominance
The rise of alternatives helps to explain why the longer-dated bets of oil prices made two-five years ago are below current prices. For example, solar power has been more popular, and the price of solar power has dropped by 50 per cent since 2009. At the same time, major E&P firms are pressured to look for environmentally friendly forms of energy (i.e. not oil).
4. OPEC+ or ROPEC production cuts may soon ease, and the price effect could hurt
OPEC + Russia has met a challenger for global crude supply in the United States, but the two nations make up many production cuts that have stabilised the market. If either or both decide that they have paid their dues, and the market is stabilised, we could see a large influx of supply coming onto the market that could act as a broad ceiling on prices.
5. Sanctions on Iran may prove to be the oil market wildcard
Sanctions around OPEC’s third-largest producer, Iran remain in focus in 2019 as the US government has moved to tighten sanctions, but Iranian President Hassan Rouhani has said there’s no chance of the nation’s exports falling to zero after the US tightened its position on sanctions waivers. The IMF (International Monetary Fund) has stepped in saying such sanctions could result in aggressive inflation in Iran if the US tightens sanctions.