Oil ended its best year since 2016 with Brent crude up 23 per cent and West Texas Intermediate climbing by 34 per cent, with an optimistic outlook on the resolution of the US-China trade war as well as tighter supply thanks to an Opec+ agreement thrashed out last month.
Prices broke their stagnancy for much of last year with a rally in December prompted by Beijing and Washington agreeing to sign the first phase of a trade deal this month. So what will shape markets over the next 12 months?
The groupled by Saudi Arabia and Russia will begin implementing deeper cuts of 2.1 million barrels per day until the end of the first quarter, higher than the 1.2 million bpd withheld from the market last year. The alliance, which was forged in Algiers in 2016, has been limiting production since January 2017 with a view to providing some level of stability in oil markets following the price crash between 2014-16. It continues to grapple with the reality of the US being the most dominant player in the global oil industry, though. Its collective action this year could bolster prices but it remains to be seen for how long the group can sustain the deeper cuts, which have only reluctantly been agreed to by some members.
US-China trade war
The trade tensions between the US and China weighed on oil for much of 2019, keeping Brent crude resilient to geopolitical tensions in the Middle East and restricting pricing to a tight band between $55 and $60. Uncertainty over the resolution of the trade war has been one of the biggest drivers of oil markets. Consensus over a phase one trade deal has appeased markets, prompting a rally towards the end of 2019, with the freeze of tariffs boosting sentiment for the global economy, which has been plagued by recessionary fears. The two sides are set to sign the phase one deal on January 15. However, there is still work to do. US President Donald Trump has vowed to start work on the phase two deal, which includes stickier points such as restrictions on China's subsidies to state-owned firms. How this plays out next year ahead of Mr Trump's re-election campaign will also be a deciding factor for the oil markets.
The United States will decide on its new president this year, with Mr Trump campaigning to be re-elected. He has become one of the most important factors impacting oil prices, with his pronouncements via Twitter on Opec or the trade war causing prices to rally or slump. Mr Trump was influential in coaxing Opec+ to reverse production cuts in 2018 in order to moderate prices to appease voters ahead of the midterm elections.
Should Mr Trump win re-election, there would be a "continuation" of US energy policy albeit "more intense", said Randolph Bell, director of the Atlantic Council's Global Energy Centre.
"So that's a deregulatory agenda in the United States and a lack of action on climate change," he said. This would, however, prompt more of a leadership role on the climate change front from US tech companies, he added. Left-leaning Democratic candidates such as Bernie Sanders and Elizabeth Warren, on the other hand, have been campaigning for stricter action on climate change and have also proposed a ban on fracking, which could hurt the US energy industry and challenge its dominance as the world's top producer. Yet such a scenario seems unlikely, Mr Bell suggested. "[A] ban on fracking would require the support of the US congress. That's really off the table and these promises are for campaign purposes than for real," he said.