For years, analysts have looked to OPEC’s annual meeting holding their breath for the latest production hikes or cuts — because these have been significant factors in the price of oil.

Yet this year, despite more production cuts the meeting earlier this month went by with barely a wimper. One reason may have been the long-awaited IPO of Saudi Arabia’s Aramco.

More importantly however is even though cuts were announced (500,000 per day for the first quarter of next year), they are not considered significant.

While 500,000 barrels seems plentiful, it is actually not. Saudi Arabia will produce just 5,000 barrels per day less than the average of the last nine months.

Meanwhile, other markets have either struggled to meet targets or will have to increase. For instance, Iraq has pumped above its baseline for most of 2019 and Angola’s sector has been well below targets and will increase production next year.

And with oil prices remaining stable in 2019, small cap directors have put their minds to other factors in the oil markets.


Demand trumps supply

CommSec commodities analyst Vivek Dhar said supply had played a secondary role to demand in driving oil prices this year.

He believes trade relations and growth expectations impacted oil prices more and this will continue into 2020.

He noted hopes of a deal had supported oil prices but thinks “markets will need to see more progress for downside pressure from the US-China trade war to meaningfully reverse”.

Issues of intellectual property and China’s subsidies for its industrial sector remained unresolved.

CommSec predicted Brent oil would remain at $US65 ($94) per barrel.

ASX small caps like Indonesia-focused Bass Oil (ASX:BAS) are keeping a close eye on market demand.

Managing director Tino Guglielmo told Stockhead last month that while Bass was not immune to oil prices, the company would be more impacted by Indonesia’s favourable policy moves for oil explorers.

One of the larger destinations for oil plays on the ASX is the US. While American production dipped in recent days, it is just below its record high of 12.9 million barrels per day. The Energy Information Administration forecasts this could be 13.18 million barrels per day in 2020.


Black gold still very much in demand

Giles Coghlan, chief currency analyst of Forex broker HYCM, agrees the trade war is just as important for oil prices as OPEC moves.

But two other factors that could move oil prices, according to Coghlan, are new technologies and alternative energy sources failing to materialise.

“Almost a decade after it was feared that we had reached ‘peak oil’, our reliance on black gold has led us to find more ingenious ways of pulling it out of the ground in greater quantities,” he said.

“While most of us have largely accepted that the future will involve us relying on alternative sources of energy, this significant regime change is not yet upon us.

“Could crude oil experience one last manic run before it starts to be replaced as the dominant energy source? The factors discussed above seem to suggest this as a distinct possibility.”

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