Economic Report 2019

ECONOMIC REPORT 2019

4.1 Business Environment

Oil Market During the first half of 2019, Brent crude averaged $66 per barrel (bbl), in comparison with an average of $71/bbl in 2018, and significant volatility has persisted in the market — evidenced by a 38 per cent swing in prices. This is felt to an even greater extent in the UK given the ongoing volatility of the GBP/USD exchange rate, which saw a swing of 10 per cent in the first seven months of 2019. To manage this, E&P companies are continuing to review their portfolios to ensure they are robust enough to withstand price fluctuations, and any new investments generally need to break even at less than $50/bbl. Brent opened 2019 at around $54/bbl and steadily increased to $74/bbl in April before dropping back to $65/bbl in July and $57/bbl in early August. Meanwhile, futures benchmarks have fallen 20 per cent from April levels. This volatility has been driven by a combination of supply and demand considerations. Concerns around supply have been heightened by increased geopolitical tensions in the Middle East and between the US and Iran, while on the demand side the increasingly negative global economic outlook has dampened market sentiment. Global oil demand levels correlate strongly with economic growth, and lower demand levels generally translate into a negative price outlook.

Figure 9: Brent Crude Price

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Average Monthly Nominal Brent Spot Price ($/bbl)

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: EIA

Following strong growth in 2017–18, global economic performance so far this year has slowed, largely as a result of ongoing geopolitical uncertainty. The International Monetary Fund (IMF) 5 has revised its most recent global GDP growth forecasts for 2019 downwards by 0.5 per cent, to 3.2 per cent; this compares with an overall growth figure of 3.6 per cent in 2018.

5 IMF World Economic Outlook, October 2018 and July 2019 www.imf.org/en/Publications/WEO/Issues/2019/07/18/WEOupdateJuly2019

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