APICORP released its latest research report today, indicating that oil prices are likely to trade between $60 and $70 per barrel by mid-2019, barring a sharp economic slowdown.
The report noted that Q4 saw fluctuating prices. "After a sharp rise in the oil price to $85 per barrel in October 2018, overall sentiment became bearish and 2018 ended on a lower note with oil prices down to around $54 per barrel."
“As market fundamentals re-assert themselves, the oil price will recover some of its current losses and our base case forecast is for the oil price to trade between the $60-70/b range towards the second half of the year, barring a sharp slowdown in the global economy," said Mustafa Ansari, senior economist at APICORP. "As we enter the new year, there are growing concerns about the broader macro environment and the rise of protectionist policies, which are impacting oil demand."
Market balance will rely upon OPEC's "effectiveness in implementing the cuts," according to APICORP, which also noted that a cut of 1.2 mn barrels per day (mbpd) by OPEC and its allies might not be sufficient. On the other hand, the report also noted that OPEC could lose more than the 800,000 bpd it agreed to cut as production declines in Iran and Venezuela (both of which received waivers from agreed-upon cuts for 2019).
In the report, APICORP noted that oil market stability was compromised in May 2018 when US President Donald Trump announced that the US would re-impose sanctions on Iran. "This resulted in tremendous uncertainty in the market, especially around the size of the potential loss of Iranian barrels," the report noted. "Alongside the continuing decline in Venezuela’s production and other output losses in Libya and Canada, the supply picture looked very bleak, especially given expectations of robust demand growth in the second half of 2018. As a response, Brent prices started rising in May and June trading above $75/b towards the end of June/early July."
The report continued, outlining the OPEC+ decision to send a strong signal by injecting more supply into the market. The first surge in output occurred in May 2018, which helped ease market concerns and prices fell temporarily in the months of July and August reaching low $70/b in mid-August.
However, approaching November, the month in which the US would reinstate the sanctions on Iran, prices started rising again. "Expectations of large Iranian losses, scramble for barrels by refineries concerned about supply shortages, and doubts as to whether Saudi Arabia is capable of ramping up production above 11 mb/d pushed Brent prices above $85/b at the start of October," the report noted.
The US then surprised the market by issuing eight temporary waivers to continue importing Iranian oil, a fact which APICORP says "highlights the ability of the US administration to heat up or cool down the market and–at least in the short term–influence oil prices."
Rising US production will also factor into oil prices for 2019, but global demand will be a key factor for exporting nations. "According to recent research from the OIES, stronger than expected oil demand growth has been responsible for 80% of the market rebalancing and thus any slowdown in the global economy that results in lower demand growth will have a drastic effect on oil prices," APICORP's report noted.
The US-China trade war is one factor casting worry on the global economic outlook, and the rport noted that China's economy has been slowing down, and economist predict a slowdown in the US economy as well.