I IEEJ：April 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (423)

April 12, 2019Brent Rose Back above $70/bbl for the 1st Time in 5 Months
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Crude oil prices have gradually risen back. On April 5, the front-month Brent crude oil
futures contract closed at $70.34 per barrel, topping $70/bbl for the first time in five months, sincelast November 12. It remained above the level later and hit a year-to-date high of $71.73/bbl on April
10.
Crude oil prices entered a downtrend early last October and accelerated their fall inDecember. On December 24, Brent sank to last year’s low of $50.47/bbl. Behind the rapid crude oil
price fall were a large increase in U.S. shale oil production, a switch from a concerted production cut
to an expansion by the Organization of the Petroleum Exporting Countries and some non-OPEC oil
producing countries, and growing concern about global economic risks under the escalation of theU.S.-China trade war. Fearing that these factors could further loosen the oil supply-demand balance
to trigger a further price fall, the OPEC-plus group at its meeting in December decided to cut
production by 1.2 million barrels per day from the beginning of 2019. Rapid crude oil price falls andconcern about further drops forced these oil producing countries to change their policy again.
As the OPEC-plus group implemented the production cut from the beginning of 2019,crude oil prices bottomed out and entered an uptrend. Brent rose back above $60/bbl as early as inJanuary and went up from a $60-65/bbl range to a $65-70/bbl range. In a similar manner, thefront-month West Texas Intermediate crude oil futures rose back above $50/bbl in January from thebottom of $42.53/bbl late last year, remained in a $55-60/bbl range from February and topped$60/bbl in late March. Both Brent and WTI soared by about $20/bbl in nearly fourth months fromtheir respective bottoms late last year.
Factors behind the crude oil price hikes are not limited to the implementation andcontinuation of the OPEC-plus production cut. Important among the other factors is robust growth inglobal oil demand. The latest monthly oil market report by the International Energy Agency projects
global oil demand in 2019 to post a robust increase of 1.4% or 1.39 million barrels per day to 100.6
million bpd. Oil demand growth centers on China, India and Southeast Asia. Non-OECD Asian
countries account for 61% of global oil demand growth. Among major factors behind the rapid oil
price fall late last year was concern about global economic risks. Oil demand growth was then feared
to slow down on economic deceleration. Particularly, the escalation of the U.S.-China trade war led
oil market players then to grow conscious that a serious economic slowdown in China would
substantially decelerate global oil demand growth, contributing much to the oil price fall.
Global economic risks still exist, leading market players to remain concerned. The Chineseand U.S. economies are plagued with deceleration risks, with uncertainties lingering about British
and other European economies due to Brexit being left in the balance. At present, however, the1I IEEJ：April 2019○ｃIEEJ 2019global economy is still growing at cruising speed. The United States and China are expected to reachsome agreement over a short term to avoid economic deceleration or deterioration, although it isseen as difficult for them to fundamentally resolve their structural confrontation over technologicalsupremacy. In this sense, global economic risks, though existing, remain short of shaking the market.
While oil demand continues robust growth, global oil supply follows a downtrend. Global
oil supply in March 2019 decreased by 0.34 million bpd from the previous month to 99.16 million
bpd, according to the IEA. The March supply represented a decline of nearly 1 million bpd fromJanuary’s 100.1 million bpd. The drop from January included 0.12 million bpd for non-OPEC oil
producing countries and 0.82 million bpd for OPEC. The OPEC supply fall was remarkable. Among
non-OPEC oil producing countries, the United States is still expanding production, with its
production growth forecast at as much as 1.59 million bpd for 2019. This means that non-OPEC oil
producing countries other than the United States are reducing production.
However, the OPEC production cut has been attracting attention. Venezuela has played acentral role in the OPEC production cut from January, reducing March production by 0.37 million
bpd from January to 0.87 million bpd. Its production has thus slipped below 1 million bpd at lastwhile its domestic politics has been bogged down, with the international situation confused over U.S.
economic sanctions and support for or opposition to the current Venezuelan regime. A large-scale
blackout in March has seriously affected citizens’ daily lives and economic activities including oilindustry operations. Political, economic and social confusion is accelerating an oil production
decline in Venezuela.
Another central player in the OPEC production cut is Saudi Arabia, which reduced Marchproduction to 9.82 million bpd, the lowest in two years since early 2017. Its production cut fromJanuary to March came to 0.42 million bpd, the largest among OPEC members. As leader of theOPEC-plus production cut since the beginning of this year, Saudi Arabia has implemented its
production reduction with a strategic determination to adjust supply and demand in the internationaloil market and support crude oil prices. While the total production cut by Saudi Arabia andVenezuela exceeded an overall OPEC production fall, factors behind the two countries’ production
drops differ as mentioned above. Particularly, Saudi Arabia’s substantial production cut indicates thatthe maintenance and stabilization of crude oil prices is very important for the oil kingdom.
As far as the present market environment and supply and demand conditions remainunchanged, crude oil prices are likely to remain firm. Late last year, the Institute of Energy
Economics, Japan, projected the Brent price to average $65/bbl in the first half of this year and$70/bbl in the second half in its international oil market and crude oil price outlook. The actual pricehas so far followed or slightly exceeded our forecast. However, no optimism can be warranted about
future developments.
First, we must take note of global economic risks. As mentioned above, the risks are seen
by market participants but have fallen short of shaking the market. Attention should be paid to future
U.S. and Chinese economic trends. Particularly, the future course of the Chinese economy that
greatly influences demand for oil and other commodities must be closely watched. Geopoliticaldevelopments in Venezuela, Libya and other oil producing countries and their influence on oil
supply could rattle the market. Regarding geopolitics, we must also pay attention to how a waiver on
Iran economic sanctions would be treated. The international oil market and crude oil prices could2

I IEEJ：April 2019○ｃIEEJ 2019move depending on how U.S. President Donald Trump would try to balance his tough stance on Iranwith his policy of holding down gasoline prices for America voters toward the next presidentialelection. The fate of the U.S.-China trade war, Western economic sanctions on Russia, the Middle
Eastern situation including the Iran problem, U.S. President Trump’s Twitter intervention in OPEC
policies and other geopolitical and international developments regarding the international oil market
may continue to exert great influence on crude oil prices.
Contact: report@tky.ieej.or.jp
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