The outlook for the U.S. energy market in 2019 is a mixed bag, according to Forbes. While the finance and business website expects oil prices to rise by $25 per barrel over 2018 levels, it also warns that the growth of U.S. oil production is likely to slow this year.
Although some analysts have pointed to the growing impact of electric vehicles and high U.S. oil production to argue that 2019 will see an oversupply of crude, Forbes’ Robert Rapier contends that decisions by OPEC will counteract these trends. Led by Saudi Arabia, OPEC decided to slash oil production late last year by 1.2 million barrels per day after the Trump administration agreed to exemptions in its new package of sanctions against Iran that permitted countries to continue buying Iranian oil for an additional six months. This led to an oversupply of oil on the market, since Washington had earlier encouraged Saudi Arabia to boost its oil production to cover the expected shortfall produced by the absence of Iranian oil on global markets.
In addition to Iran, prices were also driven lower towards the end of the year by a bleak economic outlook for 2019. From its high point of $76 in October, oil prices fell by 40 percent by the end of December.
“I don’t know how long it will be before sentiment shifts. And there are still going to be those who think electric vehicles are soon going to put oil out of business. Those sentiments will impact prices. But I expect that by the end of the year, OPEC’s strategy will be working, and you will see oil prices get back to the $70/bbl level,” writes Rapier.
OPEC’s meeting in June will prove critical in deciding whether this prediction comes true. The reduction in oil output agreed on last year was limited to six months, meaning that the alliance could decide to boost production again if prices have bounced back by the middle of the 2019. If OPEC accepts such a decision, prices would be cut again.
Slowing production in the US
2018 was a bumper year for U.S. oil production, with the industry adding an average of 1.5 million barrels per day compared with a year earlier. While Rapier expects production to rise again from the 2018 average of 10.9 million barrels per day, he projects this to happen at a slower pace.
The federal government agrees that production growth will slow. According to an estimate from the Energy Information Administration released in mid-January, crude production in 2019 will climb by roughly 1 million barrels per day. 2020 will see a further slowdown to an additional 800,000 barrels per day.
Reuters reports that production at onshore drilling and fracking facilities will be cut back over the coming months due to the oil price drop. The article points out that U.S. crude futures are down from an average of $75 last October to $55, the largest decline in prices since the 2014 oil price crash.
Taking a closer look at the next 12 months, Reuters expects the pace of oil production growth to remain relatively fast during the first six months of 2019. That’s because oil wells that were planned prior to October 2018, when oil prices peaked, will still be coming online. However, the second half of 2019 will see a decline in production, as the current oil price drop filters through the market.
Political and economic influences
A number of broader factors are set to impact the oil price and shifts in production during 2019.
Although the Trump administration agreed to issue waivers to countries which rely on Iranian oil imports, these were only extended for six months. If the U.S. government decides, as many expect it will, to cancel these waivers when they come up for renewal in May, it would cut oil supply on the global market and increase prices.
The progress of trade talks between the US and China will also prove important. If the U.S. and China reimpose tariffs on imports at the beginning of March, many analysts expect that this will lead to a further decline in global economic output and may accelerate a slowdown in the Chinese economy. Based on this prospect, the International Monetary Fund recently cut its global growth outlook for this year.
However the oil market develops in 2019, experts expect the United States to have a significant impact on its course. In September 2018, the U.S. overtook Russia and Saudi Arabia as the world’s largest oil producer for the first time since 1973. As IHS Market’s Vinod Raghothamarao writes, “The United States poses multidimensional risks for the global oil market. Most of the world’s supply growth in 2019 is expected to come from the United States. This poses a risk of oversupply or shortfall if the United States fails to deliver.”
Jordan Smith is a freelance journalist and translator covering issues related to energy, the environment, and politics. His work has appeared on the independent news site Opposing Views, and at the Canadian Labour Institute.