Foreseeable Evolution

Image Foreseeable Evolution

Short-term prospects for the energy sector

In the short term, according to the International Energy Agency (IEA), the oil supply/demand balance will be defined essentially by the agreement to cut production reached by OPEC and a number of non-OPEC countries in late 2018. On the non-OPEC side, the agency expects an increase in production of around +1.75 million barrels per day in 2019, almost all of which will be in the USA (+1.59 million bbl/d), with a more modest contribution from Brazil (+320 thousand bbl/d).

On the OPEC side, the market will be closely watching the level of fulfilment of the commitments to cut production approved in December 2018 (-800 million bbl/d from January until June), along with the cuts announced by non-OPEC exporting allies (-400 million bbl/d), headed by Russia, which have had a direct impact on oil prices. Meanwhile, global demand is expected in 2019 to be +1.4 million bbl/d, rising to a level of 100.6 million bbl/d.

Consumption in non-OECD countries would rise by +1.12 million bbl/d, while OECD countries would see an increase of +270 million bbl/d, representing five consecutive years of positive growth. This scenario means a cut of 380 thousand barrels per day in OPEC crude oil requirements, and inventory changes of up to 30.6 million for 2019.

Short-term outlook for the global supply
demand balance
Demand = 100.55 millions of bl/d

Source: IEA and Repsol Research Unit
(*) Natural gas liquids in the OPEC which are not taken into account in the production cuts.

As for the short-term track of crude oil prices, the consensus among analysts suggests an average Brent crude price for 2019 of $69/bbl.

With regard to the short-term evolution of gas prices, the balance adjustment begun in 2017 is expected to continue in 2019. The key here will be how production in the USA performs, potentially resulting in greater volumes of associated gas as a result of oil production.

Despite the questions as to how production will progress, on the demand side solid export growth is expected (both in liquefied natural gas, or LNG, and pipeline gas). 2019 will see an ongoing increase in both liquefaction capacity, with new export terminals coming on stream, and also gas pipeline capacity to Mexico. New industrial plants are likewise expected to begin operations.

Long-term prospects for the energy sector

At the global level, fossil fuels provide more than half of primary energy consumption. In particular, 32% of global primary energy consumption comes from oil, as the most heavily used source of energy. No major changes are expected over the coming years. According to the International Energy Agency (IEA) on its basic scenario in the 2018 World Energy Outlook, the role of oil in the energy mix will have fallen by four percentage points between 2017 and 2040.

Natural gas, meanwhile, will achieve a share of 25% of total energy demand, estimated at 17.715 billion tonnes of oil equivalent. Long-term prospects for the global primary energy mix.

Long-term outlook of world
primary energy matrix

Source:: IEA and Repsol Research Unit

Macroeconomic prospects

Global economic growth has recently seen a slowdown, although for the moment this is gradual. The most recent International Monetary Fund forecasts (IMF WBO April 2019) estimate that global growth will soften to 3.3% in 2019, compared with 3.6% in 2018, while remaining stable in terms of the 3.2% growth registered in the fourth quarter of 2018. Growth in advanced economies is expected to slow down in 2019 to 1.8%, with activity in the USA expanding by 2.3% (lower than the 2.9% seen in 2018), as a result of the delayed effect of interest rate rises and greater fiscal momentum.

In any event, fiscal momentum will be positive in the USA during 2019, which will keep its economy progressing ahead of other developed countries. Activity in the Eurozone, then, is expected to grow by 1.3%, and in Spain by 2.1%.

Growth in emerging economies has been softening less severely, and despite a degree of recent stabilisation, 4.4% growth is expected for 2019, as China is responding to the cooling off of its economy with a number of stimulus measures which will gradually have an effect.

The key risks include the possibility of a more abrupt slowdown in China, since within a context of excessive debt levels and capital outflows, stimulus measures may be less effective.

Another risk would be that a greater tightening of financial conditions results in an additional downturn in consumption and investment, generating a vicious circle between the real economy and financial markets. In order to avoid this, it will be essential that central banks show greater sensitivity to financial developments.