Over H1-19, the benchmark crude oil price – Brent rose 21.2%, averaging $66.2/b (vs $71.7/b in FY-18). This was supported by a further reduction in supply by OPEC+ members in Jan-19. Beyond the production cut agreement, geopolitics played a significant role as a shortfall in supply due to sanctions on Iran and Venezuela also weighed.
Over H2-19, we believe factors that will influence the direction of oil prices remain the dynamics of demand and supply. In terms of demand, the expectation of a lacklustre global growth raises dust on-demand outcomes for the rest of the year.
While the medium-term off-take of the International Marine Organization’s (IMO) rules for
shippers to reduce the sulphur content of their oil may mean more demand for crude oil derivatives, it would not necessarily be enough to offset a weakening demand. As for supply, OPEC+ has extended its 1.2mbpd production cut agreement till Mar-20. This, along with sanctions on Iran and Venezuela puts a cap on OPEC+’s supply growth.
However, growth in non-OPEC supply remains a concern as the cartel and its allies continue to strive to balance the market.
In all, we retain our outlook for Brent price to oscillate between the band of $60-$70/b as OPEC+ cuts and geopolitics create a support level for prices while weakening demand and non-OPEC supply growth put a lid on a potential rally.
United Capital Plc Research (UCR)