Who will grab oil price dominance from OPEC in 2019?

Baku, Azerbaijan, Nov.21

By Leman Zeynalova – Trend:

Oil demand growth is expected to remain firm in the initial quarters of 2019, according to the US JP Morgan Bank.

JP Morgan economists are forecasting a turnaround in manufacturing PMIs and industrial production, the key drivers of oil demand.

“On the supply side we expect some slowdown in North American supply growth due to a slowdown in completion in the US or production curtailments in Canada announced in the 3Q18 earnings reports due to takeaway constraints. However, given that the current mismatch in supply and demand was created by OPEC+ as they relaxed the compliance on production cuts agreed in December 2016, largely the responsibility lies on OPEC+ to help bring oil markets once again into balance, with improved demand in the next quarters providing some tailwind,” said a report from the Bank.

With many oil producers requiring an oil price range of $70-80 per barrel to balance their budgets, it is highly probable that OPEC+ will act to balance the market especially due to lower demand growth projections for next year, according to the report.

With investor confidence having been hurt by the erratic swings in oil policies recently, which is evident in the rise in total short positioning in the market, JP Morgan believes that in addition to physical market tightness the catalyst for any sustainable recovery in oil prices will require a stable and supportive policy stance by OPEC.

“We mark-to-market our average 2018 oil price forecasts down by 3.7 percent to reflect a 17 percent downward revision to 4Q18 in light of the sharp drop seen in October and November. That said, we expect a moderate upside of $5‑6 per barrel from current oil price levels, with Brent ending 2018 closer to $73 per barrel,” said the report.

Oil prices have displayed significant monthly and daily moves, with 60-day realized volatility in Brent averaging 27 percent in 2H18-to-date, according to the Bank’s estimates.

“For 2019 we revised down Brent by 13 percent for the whole year to $72.6 per barrel. While the yearly average indicates a flat profile for prices in 2019 relative to this year, we believe that the support to oil in 1H19 that may come from OPEC+ supply cuts will likely wane by the end of the year as the impact of slower demand growth and unfettered increase in non-OPEC supply will become more dominant and put downward pressure on oil prices.”

The US bank has also initiated its 2020 oil price forecast, where it sees Brent averaging $62.8 per barrel, which is $10 per barrel lower than 2019 on the back of slower global growth impacting demand.

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Follow the author on Twitter: @Lyaman_Zeyn

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