QNB ex­pects av­er­age an­nual oil price of around $72 this year

Gulf Times Business - - BUSINESS -

The global oil mar­ket is ex­pected to reach a “broad bal­ance” by the end of this year; QNB has said and noted that it ex­pects an av­er­age an­nual oil price of around $72/bar­rel this year. While oil prices are reach­ing a four-year high, con­tin­ued US out­put growth and the new Rus­sia-Saudi Ara­bia oil deal are pos­ing a ques­tion to whether the mar­ket is en­ter­ing a new era.

QNB anal­y­sis delves into the de­mand and sup­ply fac­tors of the oil mar­ket, con­clud­ing with an out­look for next year.

“A mod­est ex­cess de­mand should con­tinue over the next months be­fore ad­di­tional sup­ply ca­pac­ity is ex­pected to come on-stream. The mar­ket is ex­pected to reach a broad bal­ance by the end of this year,” QNB said.

So far in 2018, Brent prices have av­er­aged $73/b, up from $55/b in 2017 and $44/b in 2016. Prices are up 27% year-to-date, fluc­tu­at­ing around the $85/b mark in early Oc­to­ber.

A num­ber of fac­tors have been push­ing oil prices more than ex­pected in 2018 from a de­mand and sup­ply side per­spec­tive.

On the de­mand side, global GDP is on course for its strong­est growth since 2011, and spurs ro­bust petroleum con­sump­tion, QNB noted. Ac­cord­ing to the US Depart­ment of En­ergy (DoE), global de­mand for crude oil is ex­pected to av­er­age 100mn bar­rels per day in 2018.

The out­look for de­mand growth in 2019 is set to stand on a firm foot­ing.

Ac­tiv­ity in the US is ex­pected to soften a touch, but this should be off­set by sturdy growth in global man­u­fac­tur­ing and in most emerg­ing mar­ket economies.

Over­all, the DoE is ex­pect­ing de­mand to av­er­age 102mn bpd in 2019.

On the sup­ply side, there are two dif­fer­ent key fac­tors play­ing out in 2018.

First, the US oil out­put boom as­so­ci­ated with the so-called “shale rev­o­lu­tion” is set for a tem­po­rary slow­down due to in­fra­struc­ture bot­tle­necks.

While a to­tal of 1mn b/d has been added to US out­put so far this year, lim­ited pipe­line ca­pac­ity in the key shale oil pro­duc­ing re­gion of the Per­mian Basin in west Texas threat­ens to re­strain sup­ply growth to lower rates than pre­vi­ously an­tic­i­pated. A jump in ‘drilled but un­com­pleted wells’ in the Per­mian (a key gauge of de­layed out­put for shale pro­duc­ers) points to slow­ing sup­ply growth in the short-term as pro­duc­ers de­lay out­put un­til take­away ca­pac­ity is boosted. Sec­ond, ma­jor stake­hold­ers of the Opec+ agree­ment, in­clud­ing GCC ex­porters and Rus­sia, have been com­pli­ant to the out­put cuts al­lo­cated to them over 2016 and 2017. Ad­di­tion­ally, idio­syn­cratic sup­ply dis­rup­tions are af­fect­ing im­por­tant pro­duc­ers, in­clud­ing Opec mem­bers such as Venezuela and Iran. A deep­en­ing eco­nomic cri­sis has pushed Venezuela’s pro­duc­tion down in 2018.

The US an­nounce­ment to re-in­tro­duce sanc­tions on Iran is al­ready af­fect­ing the Ira­nian oil in­dus­try and Bloomberg es­ti­mates that pro­duc­tion plum­meted be­tween May and Septem­ber 2018.

Such de­vel­op­ments are re­quir­ing an ex­tra ef­fort from core Opec+ coun­tries to com­pen­sate the losses and bal­ance the mar­kets. Rus­sia and Saudi Ara­bia em­pha­sised their will­ing­ness to bal­ance this fall­out in pro­duc­tion.

Both coun­tries, ahead of the re­cent meet­ing in Al­giers, agreed to raise their pro­duc­tion lev­els fur­ther with Saudi Ara­bia’s out­put ex­pected to reach a record high of 11mn b/d by end-2018.

“The out­look for 2019 points to an in­crease in sup­ply from the 100m b/d av­er­age for 2018 to 102mn bpd. The Opec+ agree­ment is set to ex­pire at the end of 2018 and free up more sup­ply,” QNB said. In ad­di­tion, the US shale out­put should re-ac­cel­er­ate with the in­crease in pipe­line ca­pac­ity from the Per­mian Basin by mid-2019. US crude ex­ports, which are cur­rently be­ing capped around 2mn bpd by in­fra­struc­ture con­straints, could reach 3mn bpd by end of 2019.

In sum­mary, QNB said “con­tin­ued ex­cess de­mand” has been draw­ing down OECD com­mer­cial in­ven­to­ries since Q3, 2016, from 3.1bn to the cur­rent 2.8bn bar­rels level.

This is very close to the 5-year av­er­age bench­mark, the de­clared tar­get for the Opec cut agree­ment.

“In short, the oil mar­ket in our view finds it­self in broad bal­ance. There­fore, we ex­pect an av­er­age an­nual oil price of around $72/b. For 2019, for­ward prices in­di­cate an av­er­age of $82/b and con­sen­sus fore­casts are point­ing to $73/b.

“Hence, the out­look in­di­cates that the mod­er­ate over-sup­ply should push prices down to­wards our fore­cast av­er­age of $69/b for 2019,” QNB said.

Newspapers in English

Newspapers from Qatar

© PressReader. All rights reserved.