“Negative shocks on the global economy are gradually starting to wear off. Meanwhile, previously enacted policy support mechanisms are finding traction [...],” S&P Global Platts Analytics said in a recent report, adding that policymakers appear to be in control.

As oil demand growth stabilizes, supply is looking constrained. Increased refinery runs are expected to draw down stocks, the Organization of the Petroleum Exporting Countries (OPEC) is leaning toward extending its output cut agreement, and United States' shale production is slowing. Moreover, the Saudis may exercise supply restraint in order to support prices ahead of Saudi Aramco’s initial public offering (IPO), and the slowing supply comes as China is importing record volumes of crude oil to support new refinery start-ups.

Brent futures have gained approximately 10 percent since early October, with the contract closing just above US$62 per barrel on Nov. 12 and Platts Analytics expects Brent to touch the $65 per barrel level before year-end.

Platts Analytics has revised lower its 2020 global oil supply growth outlook to 1.9 million barrels per day (bpd) on reduced expectations for US shale. Lower rig activity and ongoing capital discipline has constrained US shale production growth much faster than anticipated, it said, adding that it now expects US shale output to grow by 850,000 bpd in 2020, down from a previous forecast of 1.1 million bpd.

A similar sentiment was echoed by Scott Sheffield, chief executive officer of Pioneer Natural Resources, a prominent Permian Basin producer in the US. Sheffield said he expected activity in the Permian Basin to slow “significantly” over the next several years.

Several years of West Texas Intermediate oil prices largely in the $50s per barrel, despite higher levels in 2018, have “strained” balance sheets for oil companies, Sheffield said, adding that as a result, operators are highly focused on spending less on capital, paying down debt and returning more cash to shareholders.

A slowing outlook for US shale will be something that OPEC and its allies will keep an eye on when they meet in Vienna on Dec. 5 to 6 to discuss their next policy steps. Another factor will be the state of the oil market closer to the meeting, in light of the Aramco IPO. Platts Analytics has said that the odds of a coordinated cut would increase if markets do not strengthen over the next few weeks.

For now though, OPEC appears to be leaning increasingly toward extending their 1.2 million bpd supply cut agreement through the end of 2020, eschewing deeper curbs on hopes the global economy will grow more robustly than forecast.

OPEC secretary-general Mohammed Barkindo has said that he sees no threat of a global recession in 2020 that would necessitate any drastic OPEC action to prevent a major sell-off in oil prices, despite forecasts of slowing gross domestic product growth and the US-China trade dispute.

Stocks are expected to tighten toward year-end. Crude stock draws reversed in October with a seasonal lull in refinery activity. But global runs are expected to increase by nearly 4 million bpd through November and December, and crude stock draws in major markets of the Organization for Economic Cooperation and Development are forecast at a substantial 1.2 million bpd in December, Platts Analytics reports.

“Stock levels overall are set to face a significant deficit at end-2019, which means supply will have to grow faster than demand in 2020 just to keep stocks flat. As such, even though supply growth exceeds demand growth next year, we see stocks flat to slightly down on the year,” it said.

Meanwhile, China’s crude oil imports continue to grow. Imports surged 17 percent year on year to hit a record high of 10.76 million bpd in October, official data showed. The ample shipments in the month pushed China’s crude imports over January to October to reach 10 million bpd, up 10.5 percent year on year.

“We expect China’s crude imports to average 10.13 million bpd in Q4, and our growth forecast for 2019 and 2020 is 691,000 bpd and 573,000 bpd, respectively,” Platts Analytics said in its latest China Oil Market Forecast.

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