Oil's rally over trade war de-escalation 'short-lived', says IIF

Oil demand growth likely to remain lukewarm in 2020, says the institute

The IIF is less bullish about oil prices in 2020 and forecasts Brent to average $60 per barrel. Reuters

Brent is likely to average $60 per barrel in 2020, with demand growth for crude to decline to 1 million barrels per day, according to the Institute of International Finance (IIF).

The forecast by the Washington-based institute is significantly lower than estimates by investment banks JP Morgan and Goldman Sachs, who have projected the benchmark to average $64.5 and $63 per barrel in next year.

Brent was down 0.38 per cent, trading at $65.85 per barrel at 3.58pm UAE time, while West Texas Intermediate, which largely tracks North American crude grades, was down 0.67 per cent at $60.53 per barrel.

The price rally following US-China consensus over 'phase-one' of their trade deal and diminishing uncertainty over Brexit following Boris Johnson's re-election as British prime minister "is likely to be short-lived", IIF noted.

Oil demand growth is likely to remain tepid despite de-escalation of trade tensions between Beijing and Washington who have now vowed to press on with the second phase of the trade deal.

"Growth in global demand for oil continues to be dominated by emerging and developing economies, with China accounting for half of the incremental increase and India one-fourth," said the report.

"Slower global growth, even with an agreement on de-escalation of the trade war between the US and China, could mean slower oil demand in 2020," it added.

Deeper production cuts by Opec+ - the alliance led by Saudi Arabia and Russia - from the beginning of January may not be enough to balance the markets next year, according to the IIF. The alliance plans to tackle global inventories by undertaking a reduction in output by 2.1 million bpd.

The institute forecasts a rise in global liquid fuel inventories by around 1 million bpd by 2020, compared with 200,000 bpd in 2019.

Non-Opec supply is likely to grow with robust production from the US, Canada and  Brazil leading to a supply glut. Oil production from the US is expected to average 13.2 million bpd in 2020, an increase of 900,000 bpd over 2019 levels.

The biggest downside risks to prices, according to the IIF, include an unexpected increase in Opec supply, beyond the levels agreed to in the current pact or a gradual recovery in Venezuela, which has seen production decline due to US sanctions against its government. Acceleration of growth in output from the US shale basins due to further efficiency gains could be another factor impacting prices in 2020, IIF noted.