PE Outlook 2019: A year of turbulence
The mood music at year-end 2018 was increasingly gloomy, as economic and political factors spook oil and gas markets
Oil prices rose - then sank. President Trump was true to his word and pulled the US out of the Iran nuclear agreement. Major oil producers Brazil and Mexico elected new presidents, both of a populist persuasion (though cut from rather different political cloths). Saudi Arabia found itself caught up in a diplomatic embarrassment, following the murder of the prominent Saudi journalist Jamal Khashoggi. The Democrats retook Congress in the US mid-term elections, and the US broke records, pumping more than 11mn barrels a day of crude. Britain continued to torture itself over Brexit, and Trump kickstarted a trade war with China. Meanwhile, Venezuela's oil production collapsed as the troubled Latin American country entered a new phase of its slow-motion implosion.
If 2017 was a turbulent year, then 2018 proved itself at least its predecessor's equal - and with signs of global economic weakness emerging towards year-end, the oil and gas industry will look into 2019 with a justified sense of trepidation.
Politics across the globe remains in a febrile mood, with voters prepared to upset established orders. And if the politics looks unpredictable, the economics is equally troubling. The more positive economic mood evident in the earlier part of the year had dissipated somewhat towards the third quarter of 2018. The European powerhouse that is Germany saw its economy contract by 0.2pc in Q3, its first such decline in three years, while Japan's GDP contracted 0.3pc. China hit its lowest growth rate for 10 years at 6.5pc in the quarter.
Meanwhile emerging market currencies fell, hiking the costs of imports (crude oil included). Stock markets were quick to translate the falls in oil prices into market declines. In October, about 9pc was shaved off the MSCI World Index, as Brent crude prices dropped from $86 at the start of the month to just $67 by the end.
Oil markets were shaped by bearish drivers, notably rising stock levels, as oil supply outpaced demand. Between May and November, oil producers began to unwind their cuts, causing output to soar by a net 1.8m bl/d.
No wonder then that forecasters were tumbling over themselves to revise downwards their outlooks for 2019.
Those outlooks will be influenced by possible negative events such as a further tightening of US tariffs on Chinese imports, with Trump threatening to hike the rate imposed on half of Chinese US-bound exports from 10pc to 25pc.
The International Energy Agency (IEA), the voice of OECD oil-consuming nations, foresees supply continuing to outpace demand throughout 2019, as a "relentless" rise in output is swamps growth in consumption that is at risk from a slowing economy. In November, the Paris-based agency raised its forecast for oil output growth from non-Opec countries to 2.4mn bl/d in 2018 and 1.9mn in 2019 - against its previous estimate of 2.2mn bl/d and 1.8mn bl/d, respectively.
In 2019, there will likely be less call on Opec crude, thanks to the growth in non-Opec supply, says the IEA. It cut its forecast for demand for OPEC crude by 300,000 bl/d to 31.3mn bl/d in 2019.
Events over the past few years have shown that forecasting can be a mug's game. Nonetheless, this outlook, PE can call on its collective resources to give insightful and forward-looking views on what will shape energy markets for the year ahead. Among them, Bill Barnes highlights the possible impacts of rising Marcellus natural gas supply, Daniel Marks reveals the surging interest in LNG to power in Africa, while Justin Dargin shows how Saudi Arabia is transforming its own energy strategy.
We hope you enjoy what they have to say, as they look back at 2018 and - the hard part - give a view as to what might be in store in 2019.
Over the next days and weeks, we will be publishing select articles from PE Outlook 2019, the full version is only available from our store.