Oil prices to average $67/b in 2019, fragile balance to market: Platts survey
Brent crude will likely stay in a holding pattern and average close to $67/b in 2019, but the balance remains fragile as OPEC’s production cuts and sanctions on Iran and Venezuela offset new US supply later this year, according to top banks and oil brokers surveyed by S&P Global Platts.
The consensus forecast for front-month spot Brent has fallen from $75.50/b in the survey in the previous quarter on a strong production outlook for shale and the oil majors. The trend is seen continuing into 2020, with the panel predicting an average of around $68/b for Brent next year.
Oil prices have recovered to just shy of $70/b since dipping to a low of around $50/b at the end of last year, after Saudi Arabia and Russia turned on the taps to prevent any supply shock from the impact of US sanctions imposed on Iran in November. But the US ended up providing waivers to eight countries, wrong-footing OPEC and its allies, which have stuck to their production cut deal and will next make a call on their market management strategy in June.
US shale output is also on the rise.
“Strategy updates from Chevron and Exxon highlighted stronger upside from their Permian acreage thanks to better productivity and higher activity,” HSBC wrote in a research note.
BNP Paribas echoed this view. “The ability of the US to expand its crude oil exports will increase during Q3 2019 with the help of new pipeline capacity connecting the Permian shale basin, the driver of US oil supply growth, to the oil terminal and refining hub of Corpus Christi on the US Gulf Coast,” said BNP’s senior oil market strategist Harry Tchilinguirian.
“We expect the price of the light crude benchmarks WTI and Brent to come under pressure at the end of this year, but we also expect to see price convergence in the benchmarks as light US shale oil competes with Brent and Brent-related crudes in the Atlantic Basin and Asian markets,” he said.
S&P Global Platts Analytics is also upbeat on US crude supply after pipeline bottlenecks ease, and sees rapid production growth from the Permian Basin. Platts Analytics expects an extra 2.6 million b/d of pipeline capacity will come online in 2019 and early 2020, which will ease supply issues.
Saudi Arabia-led output cuts as part of the 1.2 million b/d pact between OPEC and its allies have helped provide a floor.
“OPEC looks determined to continue defending price. … However, the success of such a strategy looks set to continue to encourage strong US growth,” noted HSBC.
Views on production from sanctions-hit Iran and Venezuela are also bearish, with Standard Chartered stating that the near-to-medium term outlook for Venezuela output appears negative.
“We had expected output to fall below 1 million b/d by mid-year even before the current power crisis,” Standard Chartered said.
Platts’ survey of OPEC production put Venezuela’s production at 1.10 million b/d in February, and many analysts predict production will fall by a further 500,000 b/d by the end of the year.
Sanctions on Iran and Venezuela have hit the heavy sour crude producers hard, with Iran losing over 1 million b/d in output in the past year. Attention is turning to whether the US will extend the waivers granted in November, with India and China remaining key buyers of Iran crude. Iran could shut-in more wells and carry out maintenance at its aging oil fields as output plunges, while the May deadline for the waiver extension has left the market guessing.
Libya’s production has recovered to 1.2 million b/d after security issues and Nigeria’s output has been boosted by the 200,000 b/d Egina field coming online after shaking off its own militancy troubles. But instability in these countries could bring further disruptions to global oil supply.