Three reasons for sharp decline in oil price by end-2019

Oil&Gas Materials 17 April 2019 16:41 (UTC +04:00)

Baku, Azerbaijan, April 17

By Leman Zeynalova – Trend:

The UK-based Capital Economics consulting company maintains its forecast of a sharp fall in oil prices by end-2019, Trend reports citing the company.

“While unseasonably mild weather and oversupply led to slumps in the prices of coal and natural gas, oil prices posted the strongest quarterly gain in almost a decade. Undoubtedly, output cuts by OPEC producers have been the mainspring, but a resurgence in risk appetite also buoyed prices,” said the company.

Nevertheless, Capital Economics maintains its price forecast of $50 per barrel by end-2019 for three key reasons.

“First, we predict global growth in 2019 will remain sluggish, dampening the prospects for oil demand. Second, we see the S&P 500 plunging to 2,300 by end-2019 owing to a return of risk aversion. Based on recent history, oil prices could follow suit. Third, tantalisingly high oil prices should prompt further increases in supply, particularly in the US. Admittedly, OPEC+ could cut its production further but given the recent rise in prices, this looks unlikely,” reads a report from the company.

Meanwhile, the Brent-WTI spread remains wide, according to Capital Economics.

“But we forecast that it will narrow to $5 by end-2019 as US pipeline bottlenecks clear, which will facilitate exports. Our longer-term forecast for oil is more positive. We expect an increasingly dovish Fed to support US oil demand and stoke a revival in risk appetite in 2020. We think that the price of Brent will rise to $60 per barrel by end-2020 and $65 by end-2021.”


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