Baku, Azerbaijan, June 11
By Leman Zeynalova – Trend:
Given the expected weakness in fundamentals, in 2019, the US JP Morgan Bank has revised Brent down by $1 per barrel versus its previous expectations.
“In the high case scenario, we expect Brent to average $74.55/bbl in 2018 and $78.75/bbl in 2019. The risk of oil prices gravitating towards the high case remains high given the rise in geopolitical tensions and potential risk to large scale disruptions to oil supply from key oil producing countries such as Iran and Venezuela in particular. Also, depending on what OPEC decides on 22 June 2018, that could also push up the probability of oil moving towards the high case scenario if they maintain the existing deal into 2019. A risk to global growth would increase probability of pushing the prices towards our low case scenario,” said the report from JP Morgan Bank, obtained by Trend.
JP Morgan experts think there might be one last hurrah (upside) when it comes to prices especially if OPEC were to announce a release of barrels which is less than what markets have priced in currently. Markets have priced in a return of around 400,000 barrels per day of oil from OPEC and NOPEC currently.
“If OPEC was to announce a release less than that, we could see one last leg up on oil prices as physical oil markets will undoubtedly be tighter in 3Q2018 vs. our previous expectations as evident from our updated global balances,” said the report.
However, it will very quickly correct itself as any announcement of easing of barrels will signal two things: one, that OPEC members are preparing an eventual return of the oil supply that was cut back by 4.5 percent in Dec 2016 and two, the easing of oil will make the global fundamental weaker from 4Q2018 onwards, the analysts believe.
“Also we could expect play on words by OPEC where they could suggest reducing compliance from 170 percent to 100 percent which still essentially means that OPEC members that can sustainably bring back additional supply will essentially bring back most of the barrels back and the 100 percent compliance can be reached just from the natural decline in supply from Venezuela, Angola and potential Iran supply cuts due to sanctions,” said the report.
JP Morgan believes that any announcement related to the release of barrels will coincide with Iran nuclear deal 180 days grace period that ends on 4 November.
“So if OPEC members were to advice their clients of extra barrels being brought into the market to replace Iranian oil or to meet higher demand from the tighter markets, that oil will only hit the markets in 4Q2018 given the notice period and transportation time,” said the report.
In December 2016, at a meeting of oil producers in Vienna, 11 non-OPEC member countries agreed to cut oil production by a total of 558,000 barrels a day. The agreement was concluded for the first half of 2017 and was extended until the end of the first quarter of 2018 at a meeting on May 25, 2017.
At the last OPEC meeting in Vienna, the agreement was again extended until the end of 2018. Azerbaijan supported the decision.
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