OIL WEEK AHEAD: Davos’ Explosive Mix

The months ahead could see a further decline in oil prices with proper recovery not settling in until 2021.

The World Economic Forum in Davos usually provides ample headlines for the oil industry, but this year one strategic player will be absent. Russia’s president Vladimir Putin plans on staying at home to see through a constitutional shake-up he launched in January designed to keep him in power after the 2024 election. Instead, he is expected to send an aide to represent him in sideline talks with other major oil producers.

Davos is more likely to turn again into a PR battle ground on climate change as environmental lobbyists make a stand against major oil firms which will also be present. Activist Greta Thunberg is already on her way to Switzerland for a pre-Davos protest on Sunday and other events are scheduled later in the week.

For CEOs of oil majors who will also be gathering in the Swiss ski resort, apart from the climate change headache, another issue will be trying to gauge if global economic growth will be strong enough to generate momentum in oil demand this year or whether prices more likely to stall at the current level.

President Trump will also attend the Forum while Iran’s foreign minister cancelled his trip.

Despite the tumultuous start to the year with the flare up of tensions between Iran and the US, the bounce in prices proved to be short-lived. If anything, the months ahead could see a further decline in oil prices with proper recovery not settling in until 2021. In its latest report, the US Energy Information Agency forecast Brent crude spot prices to average $65/bbl this year and to rise only slightly in 2021 to $68. It pegged WTI on average at $59 in 2020 and at $62 in 2021.

 

When

What

Why is it important?

Monday 20 Jan, 01.30

PBoC rate decision

PBoC launched a new easing cycle in November

Monday 20 Jan, 01.30

US Martin Luther King day

Nasdaq, NYSE closed

Tuesday 21 Jan

World Economic Forum Davos till 24 Jan

Oil issues will be discussed on the sidelines of the Forum

Tuesday 21 Jan, 10.00

German ZEW Economic Sentiment

Last at 10.7

Tuesday 21 Jan, 10.00

Eurozone ZEW Economic Sentiment

Last at 11.2

Wednesday 22 Jan, 15.00

US existing home sales

Last up 5.35m

Wednesday 22 Jan, 21.00

API weekly crude oil stocks

Last 1.1m

Thursday 23 Jan, 13.30

US initial jobless claims

Strength of the US job market

Thursday 23 Jan, 16.00

EIA US crude oil stocks

Last declined by 2.549 m bbl

Friday 24 Jan, 08.30

Germany manufacturing PMI

Expected to still be shrinking. Last at 43.7

Friday 24 Jan, 09.00

EU manufacturing PMI

Last at 46.3

Friday 24 Jan, 14.45

US manufacturing PMI

Buoyant in contrast to Europe, last at 52.4

Friday 24 Jan, 18.00

Baker Hughes US oil rig count

Friday 24 Jan, 20.30

CTFC oil net positions

Changes in money managers’ open positions

Is US oil output really slowing down?

The latest data from the EIA is also showing that the rapid growth of US oil production, which at one point in 2019 reached over 21% per annum, is finally running out of steam. The agency now forecasts growth of only 4.5% year-on-year in the first quarter of 2020, dropping to 4.1% in the fourth quarter. However, it is far too soon to write off US shale oil growth; it is just that the pace of growth will be slower than before. Domestic economic growth continues at a good pace, as does demand from transport and from industry. Also, for the first time, the US is about to establish itself as a net exporter of crude during 2020. US trade data, particularly data from the US Department of Energy Statistics Office, may be a better indicator of this trend over the coming months than the weekly EIA and API crude oil stock updates.


Related Articles

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.