Crude prices were relatively stable in H1-18 climbing from the low of $62.6/b to a high of $79.8/b. Pronounced volatility set in by H2-18 as prices oscillated dramatically to touch a low of $58.8/b and a peak of $86.3/b. As we head into 2019, the factors that will influence oil prices remain the dynamics of demand and supply.
Forward guidance by oil agencies indicates a softening of demand in 2019 amid weaker global growth expectations (OPEC’s monthly oil market report
consistently trimmed forecast for 2019 demand growth since its Aug-18 publication).
From the supply angle, US shale production is expected to remain robust amid ease in pipeline capacity constraints. Contrariwise, reduced supply from OPEC+ is expected following the outcome of the Dec-18 meeting to reduce production by 1.4mbpd. Nevertheless, we expect the implementation of the OPEC+ deal to create a floor for oil prices at $60/b while unexpected supply shortfalls may add a $10/b premium to the floor price. Hence, on a balance of factors, we expect oil prices to trade within a band of $60/b-$70/b in 2019.
Upside risks are stronger than expected demand, a plunge in shale production, stronger than expected decline in shale pipeline capacity and deeper than expected OPEC production cuts; while downside risks range from the rhetoric surrounding geopolitics, an overhang of trade jitters that could hamper demand as well as the level of compliance to recent supply cuts among OPEC+ members.
UNITED CAPITAL RESEARCH