One of the world's largest oil traders said brent crude could fall to its lowest level since December 2018, prompting OPEC and its Allies to cut production further.
Ben Luckock, co-head of global oil trading at Trafigura Beheer BV, said macroeconomic headwinds and rising supplies would push the global benchmark oil price towards $50 a barrel over the next six months, about 20 per cent below its current level.
Longer term, oil prices could return to a range of $70 to $75, which is cheap enough for consumers but profitable enough for producers, Luckock said.
But Luckock said oil prices could continue to slide for at least the next six months before OPEC+ cuts output further and U.S. shale producers cut spending, slowing production from one of the fastest growing sources of oil.
Less oil is "one of the few factors that can both stimulate OPEC and make shale gas harder to extract and spur demand," says Luckock.
OPEC and its Allies, including Russia, have been trying to balance global markets by cutting production since 2016, but Trafigura believes that at current oil prices, that alliance is crumbling.
Saad Rahim, the company's chief strategist and head of global research, said Iraq had been ducking its commitments, while stalwart countries such as Saudi Arabia and Kuwait were looking to restart neutral production of 500,000 barrels a day next year.
And Luckock argues that OPEC's current output cuts and enforcement are not going to be enough to actually push oil prices higher.
However, the fall in prices could rekindle the urgency of the group's co-operation and even exacerbate production cuts.
Equatorial guinea minister Gabriel Mbaga Obiang Lima said in an interview in ABU dhabi on Tuesday that oil prices would need to fall to $40 to $45 a barrel to prompt OPEC to cut production further.
Industry consultancy FGE said in a report the same day that OPEC needed to cut production by another 500,000 barrels a day to push oil prices to $70 a barrel.
Bernstein & Co.
An increase in non-opec supply is expected to require a further 1m b/d cut in 2020 to maintain $60 a barrel oil prices.
Instead, the Oxford energy institute said the increased supply could deter the saudis from seeking further cuts.
Trafigura expects global oil production to grow by 1.9 million barrels a day next year, with nearly half of that coming from shale gas.
That would exceed their forecast of 1.6 million barrels a day.
OPEC+ currently aims to cut supply by 1.2 million barrels a day.
However, Luckock argues that the oil industry is relying too much on the continued growth of us shale gas to meet demand and not investing in more expensive long-term projects such as deepwater Wells.
In 18 months to five years, there will be only one solution to global demand for us shale oil, underinvestment in the deepwater sector, a recovery in demand and a return to normal crude prices.