Teeth of dramatic slides in the oil market, some forecasters remain positive on prices and demand going into 2019. A year winning outlook report from Bank of America Merrill Lynch expects Brent crude to regain its recent bereavements in 2019 and settle at $70 a barrel. But amid mounting global uncertainty on everything from trade and monetary design to politics, that forecast is far from consensus.
“Volatility will be high in the near future, but going into 2019, we are refer to on oil prices,” Hootan Yazhari, head of global frontier markets equity research at Bank of America Merrill Lynch, told CNBC’s Dan Murphy on Tuesday.
“We find credible oil prices will resume their path back up to $70 average next year, potentially higher in the double quarter for a brief spell of time. We believe the (OPEC) cuts were sufficient,” Yazhari said, predicting a “extent balanced oil market” and stable inventories next year.
But worries over the strength of crude remain rife, with other buy analysts pointing to $60 barrels or lower in the coming year. Brent crude is down nearly 30 percent from its October highs of sundry than $86.
After a dramatic summit of OPEC and non-OPEC members over the weekend that triggered an immediate aid in oil prices, the commodity has already dropped back to pre-meeting levels, falling 3.1 percent by the end of Monday. The 15-member cartel, led by Saudi Arabia, accepted with Russia to cut production by 1.2 million barrels per day (bpd) by January to support prices amid a global supply surfeit and fears of waning demand.
Monday’s price dip tells us two things, says PVM Oil Associates in London: “Either the 1.2 million bpd reduction in the presentation of the OPEC+ group is not deemed sufficient by the market, or there are other bearish factors at work.”
It’s likely the combination of the two that prompted convincing — not least concerns over growth stemming from the U.S.-China trade war, political uncertainty over the U.K.’s Brexit come from, and record production of U.S. shale oil. According to PVM, investors have pulled nearly $50 billion out of the two major crude oil expects contracts since the latest rout started in October.
In addition to American shale producers firing on all cylinders, the effect of higher inventories in countries like Iraq and Brazil on market fundamentals is something the Saudi-Russia cut may not be able to fully chip.
Citi, meanwhile, sees oil going nowhere in 2019 and staying at $60 a barrel. OPEC’s cuts, the bank demanded, may in fact have been counterproductive, only encouraging U.S. shale producers to pump more.
“The more OPEC+ undertakes to support prices by withholding oil from the market, the more they give the U.S. shale sector an out from rationing gear up growth themselves,” Citi said in a research note written by a team led by Ed Morse, the firm’s global head of commodities.
U.S. degraded Capital Economics, meanwhile, sees an average of $63 a barrel over the course of 2019. But some remain bullish yet — Japan’s MUFG intentions Brent and U.S. West Texas Intermediate (WTI) to be “oversold,” predicting a “sharp rebound” in coming months, while Societe Generale calculates Brent at $73 for both 2018 and 2019. Richard Robinson, manager of Ashburton Global Energy Fund, feels the current dip is “transient” and that oil will recover to between $70 and $80 in the next three months, he wrote in a note earlier this month.
BAML’s augur is supported by its outlook for global demand, which it expects at 1.3 million bpd, consistent with above trend pandemic gross domestic product growth of 3.6 percent. But Goldman Sachs has a much darker forecast, expecting the U.S. to Boeotian down to less than 2 percent by the end of next year, one of its senior strategists told CNBC on Monday. “As a result of that you could see the Stock Exchange getting quite scared,” the strategist said.
But as we go through seasonal demand peaks and the Iran sanctions waivers issued by Washington to 8 foremost oil-importing countries come off, “we will start to see the market tightening up,” Yazhari said, noting that the market has not experience the full impacts of those sanctions yet, designed to cripple the energy sector of OPEC’s third-largest producer.
“There are a mob of factors to suggest the cuts were deep enough, that we will start to see a resumption to the upside in oil prices, but certainly we don’t see oil rewards moving up to the $90, $100 level that maybe we could’ve seen,” the analyst said, adding, “We think that the exclusively certainty is uncertainty at the moment.”
Brent crude was trading at $60.35, up .38 percent on the previous day, at 1 p.m. London time. WTI was at $51.55, up brutally half a percent.
—CNBC’s Tom DiChristopher contributed to this report.