WHEN Brent crude hit US$80 per barrel in late September, many thought that oil price could be on the cusp of recovery. Some even predicted that it could breach US$100 per barrel as early as next year.

Nevertheless, oil bulls appear to be headed for disappointment as Brent crude has tumbled from a four-year high of US$86.29 per barrel in early October to a low of US$59.81 per barrel at the time of writing. This indicates a 32% slump over a short span of two months.

With the slippery slide in oil prices recently, the question is, should the world accept the corrected price as the new norm for crude?

While most are still hopeful of a price recovery, this will depend on the events that unfold during the G20 Summit in Argentina as well as the meeting among members of the Organization of the Petroleum Exporting Countries (Opec) in Vienna this Thursday.

Saudi Arabia — a member of Opec and one of the world’s largest oil producers — and Russia, another major oil producer, are expected to call for lower production in order to push prices higher given that a large part of their countries’ income depends on the commodity.

In contrast, US President Donald Trump has been calling for lower oil prices. But things are a little complicated for Saudi Arabia this time around as Trump is standing by the kingdom’s crown prince despite the CIA’s conclusion that he had likely ordered the murder of journalist Jamal Khashoggi. This leaves Saudi Arabia in a bind as it needs to neutralise the public outcry in the West while keeping oil income coming in.

“Oil is a very difficult commodity to forecast as there are many factors that affect its price, from demand and supply to politics and geopolitics. For us, to get a gauge — a gauge and not a forecast of the price — we look at the base fundamentals of demand and supply,” says TA Securities chief investment officer Choo Swee Kee.

“Our view is that crude oil prices have declined quite a fair bit. Although there may be some oversupply issues, we think that a recovery may be seen in the next three months with the winter season in the Northern Hemisphere happening.”

Sapura Energy Bhd president and group CEO Tan Sri Shahril Shamsuddin also declines to give a forecast on the oil price, saying, “I have been in this business for 21 years and nobody has been able to predict it accurately.”

Nevertheless, from an industry player’s perspective, he believes crude prices will recover, based on the growing number of jobs that are  coming onto the market.

“Fundamentally, we do see inventories building up as it’s a perfect storm right now, with the sanctions being somewhat relaxed. They (oil producers) were preparing for the sanctions and were pumping as much as they could, so this is just increased inventory in a short time and that has encouraged all kinds of speculation of what oil prices will be.

“As a contractor, [we can see that] there’s already nearly four years of work going forward, or at least three years, and it is growing,” Shahril explains.

What gives him confidence is the need to compensate for the natural decline in production. “If nothing is done, there will be a shortage of 373 million barrels per day, meaning new supply is needed, and in order to do that, you need developments.”

To recap, the fall in oil prices this time around stemmed from oversupply concerns, followed by a slew of geopolitical newsflow. The earlier expectation that the US would impose stiff sanctions on Iranian oil exports, thereby causing a possible shortage in oil supply, did not happen. In a surprising move, the US granted a 180-day waiver to certain countries, including China, India, Japan and South Korea, to buy 75% of Iranian oil exports.

The Oil Market Report by the International Energy Agency (IEA), released on Nov 14, highlights that global oil supplies are on an upward trend, with record output coming out of Saudi Arabia, Russia and the US, and Iranian sanction waivers by the US as well as steady demand growth implies a stock build in 4Q2018 of 0.7 million barrels per day.

“OECD (Organisation for Economic Co-operation and Development) stocks have increased for four months in a row, with products back above the five-year average. In 1H2019, based on our outlook for non-Opec production and global demand, and assuming flat Opec production (namely losses from Iran/Venezuela are offset by others), the implied stock build is currently two mb/d (million barrels per day),” highlights the report.

Meanwhile, the IEA has forecast global oil demand growth remaining steady, with an increase of 1.3 million barrels per day this year — and rising to 1.4 million barrels per day next year — despite the uncertain macroeconomic outlook.

While some are more cautious about making a forecast on oil prices, this is not the case with many banks. Following the fall in prices, most analysts have become more measured in their forecast.

Last Friday, Citigroup lowered its Brent oil price outlook to US$55 to US$65 per barrel through 2019, given the base case assumption that the Opec+ will curb supply by up to one million barrels per day starting December.

This is below the average forecast of other banks, which are expecting oil prices to average more than US$70 per barrel next year. A survey done by S&P Global Platts, which was released on Nov 22, reveals that most top banks and oil brokers believe Brent crude will average above US$75 per barrel next year.

That said, it will be a wait-and-see game as the market looks eagerly to newsflow on Dec 6 from Opec on whether it will cut production or further roil markets by failing to come to a consensus on production levels.