Which risks to come back to push oil prices higher in 2019?
Baku, Azerbaijan, Nov. 27
By Leman Zeynalova – Trend:
The oil market is fundamentally loose and, with sentiment so bearish, a large shock would likely be needed, to move the needle on Brent, according to Fitch Solutions Macro Research (a unit of Fitch Group).
“The supply side is also weighing heavily on prices. In large part, this is due to a step change in the US’ approach to Iranian oil sanctions. On November 5, President Trump granted waivers to eight buyers of Iranian oil. The scope of the waivers – which expire after 180 days – has not been made public. And no indication has been given as to what, if any, further cuts to imports must be made for buyers to qualify for an extension in April. The US’ ‘zero export’ policy was left open-ended, while Washington emphasized the importance of low oil prices to global economic stability. It has become apparent they will not risk any shock to Brent,” said a report from the company.
Fitch Solutions believes that under its new approach to Iran, the US has removed the main supply-side risk to prices for 2019.
“The market is now struggling to absorb the more than 1 million barrels of oil per day of output added by OPEC and Russia over recent months, to offset the anticipated losses from Iran. Onshore crude inventories have been building since Q3 and in October and November have built rapidly offshore as well. This is concerning, signaling a deep glut in global supply.”
The US is shrugging off pipeline bottlenecks and a slump in regional price differentials, to record strong gains in production, while a number of greenfield projects are rolling on stream, not least in Brazil, according to the company.
“There remain some risks on the supply side. Crude inventories have normalized, while global production capacity is historically low: there are few flexible barrels left in the market to tackle any major unplanned outage. That’s said, the market is fundamentally loose and, with sentiment so bearish, a large shock would likely be needed, to move the needle on Brent,” said the report.
Fitch Solutions reminds that the collapse in oil prices in 2014 has led to several years of severe underinvestment in supply and there are risks of a deficit building in the 2020s.
“We expect these risks will be brought back into focus over 2019-2020, helping to push prices higher”
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