The end of 2018 has demonstrated the continued volatility in the crude oil market. Experts predicted a return of $100 barrel by 2020 due to prices surpassing $86.76 in October. However, throughout October and November prices tumbled to just under $58.71. As the world’s attention gravitated to the G20 Conference in Buenos Aires, the price of Brent crude futures jumped over the weekend to $60.82 for February 2019.
One of the reasons for crude oil’s price increase came from an agreement between Russia and Saudi Arabia to jointly cut production. The agreement, known as OPEC+ saw a greater level of cooperation between Riyadh and Moscow to address oversupply in world markets. Ildar Dalvetshin of Wood & Co. Financial Services predicted that Russia will be willing to cut over two hundred thousand barrels produced daily in tandem with 1.3 million barrels OPEC Ministers recommended cutting from October Levels.
Additionally, Qatar announced today that it will officially withdraw from OPEC on January 1, 2019. The move comes after more than a year of the small, peninsular nation being blockaded by its fellow Persian Gulf States. Qatar’s new energy minister Saad Sherida al-Kaabi stated, “The withdrawal decision reflects Qatar’s desire to focus on its efforts on plans to develop and increase its natural gas production from 77 million tons per year to 110 million tons in the coming years.” As the world’s fourth largest natural gas producer and second largest exporter, Qatar is in a unique position to establish itself independent of OPEC.
Going forward, the global shipping industry will face a new mandate regarding emission standards for vessels. The International Maritime Organization will enforce a new 0.5% cap on sulfur content in fuels down from the current 3.5% cap beginning on January 1, 2020. Some regions of the world’s oceans including the costal United States and Northern Europe will establish Emission Control Areas which will only permit a 0.1% sulfur cap. This new regulation is already pushing demand for heavy sweet crude oil, which can be refined into diesel fuels while having a lower sulfur content.
Areas of interest for heavy sweet crude oil include Angola, Brazil, and Chad. As of December 3 products from Angola’s Cabinda, Dalia, and Nemba Fields, each with sulfur contents below 0.5%, trade at $61 per barrel. Comparatively the lighter West Texas Intermediate trades at $53. Currently only half a million barrels of heavy sweet oil and exported in the world daily which accounts for one percent of total seaborne trade. As a result, there remains a substantial supply gap between the quality of crude and requirements for 2020.