By Irina Slav
The International Monetary Fund dampened optimism about oil prices by forecasting the average for Brent at a little over US$58.24 a barrel next year, down from this year’s projected US$62.31. And things only get worse from there, with the IMF expects oil prices to drop to US$53.6 a barrel by 2023 as global economic growth slows down.
These projections were contained in the IMF’s latest World Economic Outlook the authority released this week, and were motivated by expectations of increasing oil supply. This increase will counter the tailwind of strengthening global economic growth this year and the next, apparently: the IMF is upbeat on the world’s economy in 2018 and 2019, which should translate into higher oil demand—but this higher demand will not be enough to prop prices up.
This bearish report doesn’t even reflect a worst-case scenario, with the risk of a deepening trade rout between the United States and China not having been factored by the IMF in its oil price estimates in this edition of the WEO. Chances are that as the tensions between China and the U.S. worsen, the next edition of the report will feature the risks associated with a string of tariff exchanges between Washington and Beijing as well as any other move either of the two makes in the next three months.
Despite not including the downside risks of the U.S.-China trade war, the IMF did note that there are dangers for the global economy associated with protectionist legislation. In his statement accompanying the release of the WEO, the IMF’s Chief Economist Maurice Obstfeld said the United States should be wary of starting a trade war, as it would do nothing good for its economy, but rather affect it negatively.
The fact that “major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical – especially when the expansion is so reliant on investment and trade,” Obstfeld said, adding that a trade war would “actually widen the U.S. current account deficit.”
There is already speculation that another shot from Washington might prompt China to shoot back with tariffs on oil and gas imports, which would indeed have a negative impact on the U.S. economy, just as the country is establishing itself as an oil and gas exporter to be reckoned with.
By Irina Slav for Oilprice.com