S Oil Will Remain Volatile In 2020

I firmly believe that oil price will continue to remain volatile in 2020, as there are several geopolitical and supply-demand factors that are currently affecting oil prices. Despite ongoing tensions between U.S. and Iran, oil prices have gone down because of other long-term factors that will affect its supply-demand fundamentals in the coming time. Investors must note that WTI had crossed $65 on Tuesday, January 7th, but fell sharply from Wednesday, January 8th after the U.S – Iran tension began to de-escalate.  WTI was and trading at $59.34 at the time of writing this article. Let us look at those factors that will make oil volatile in 2020.

Rising crude oil inventories and U.S oil supplies will put pressure on oil prices

Image Source : EIA

Global oil supplies play a major role in shaping up oil prices, and It is interesting to note that almost all global energy agencies expect global oil supplies to increase in 2020. This is bad news for oil bulls! Besides, oil prices are highly receptive to crude oil inventory data. This is evident from the fact that oil prices went down further after the U.S. based Energy Information Administration (EIA) reported an inventory build-up of 1.2 million barrels for the week ending January 3, 2020. Apart from rising crude oil inventories, what interests me more is the rate at which the U.S proved oil and gas reserves are growing! According to the data released by EIA on December 9th , 2019, U.S proved crude oil reserves increased from 39.2 billion barrels at year- end 2017 to a record 43.8 billion barrels at year -end 2018. U.S natural gas reserves increased from 464 trillion cubic feet (Tcf) at year- end 2017 to 504 trillion cubic feet (Tcf) at year-end 2018. Since almost 60% of the total new oil and gas production is set to come from U.S alone, there figures  matter a lot!

OPEC+’s production cuts will play a crucial role in shaping up oil prices in future

With its high production compliance rate, OPEC along with its Russia led allies have been supporting oil prices for quite some time now. In fact, oil prices went up in December 2019, when OPEC+ decided to extend its production cuts from 1.2 million barrels per day to 1.7 million barrels per day. With Saudi Arabia taking an additional 0.4 million barrels per day cut, the total production cuts stood at 2.1 million barrels per day, which is indeed impressive. However, the long-term impact of these cuts will be known by March 2020, when OPEC+ will meet again to review its future production strategy. If the group decides to stick or extend its production cuts, then this will boost oil prices. However, if production cuts are reduced, then oil prices (thanks to rising U.S oil production) will come under immediate pressure. It is interesting to note that not every member in OPEC + is benefitting from these production cuts. Look at Russia, that can start producing at oilfields commissioned by Gazprom Neft and Rosneft in recent years, if it exits from this production deal. 

Takeaway for Investors 

I can see a lot of uncertainties that are existing in today’s markets. The U.S- China phase- 1 trade deal, which will be signed on January 15th , is currently supporting oil prices. According to Trump, the phase-2 of this trade deal ( that will focus on import-export controls, sanctions and restrictions) may be signed after the U.S election that is scheduled in November 2020. If this is true, then I believe that this trade deal will continue to support oil prices in near future. However, oil prices will continue to remain on edge thanks to the rising geo-political tensions in the Middle east. And then, we have the case of global oil supplies that will put pressure on oil prices. Investor must note that Paris- based International Energy Agency (IEA) expects non- OPEC oil production to grow by 2.1 million barrels per day in 2020, a substantial growth in my opinion. When I look at the above stated factors, I can see that oil will remain volatile in 2020. I expect WTI to remain under $60 during the first quarter of 2020. However, investors can expect sudden price fluctuations based on geopolitical events.

Disclosure: None.

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Anastasija Janevska 2 years ago Member's comment

Looking forward to your next article.

Gaurav Agnihotri 2 years ago Author's comment

Thanks, just posted another one on BP Plc.

Anastasija Janevska 2 years ago Member's comment

Link? Thanks Gaurav.

Alexa Graham 2 years ago Member's comment

Any thoughts on Saudi Aramco?

Gaurav Agnihotri 2 years ago Author's comment

Saudi Aramco will continue to do well, irrespective of any price fluctuations in 2020.

Alpha Stockman 2 years ago Member's comment

This article is spot on. Well done.

Gaurav Agnihotri 2 years ago Author's comment


Harry Goldstein 2 years ago Member's comment

Good article.

Gaurav Agnihotri 2 years ago Author's comment

thank you.

Danny Straus 2 years ago Member's comment

I would think that with all the rising tensions in the middle east, the price of oil will only go up!