S&P reviews downward crude forecast

S&P GLOBAL RATINGS has lowered its average crude oil price forecast to $55 per barrel in 2019, a reduction of $10 per barrel as a result of slower global demand growth and rising global inventory levels.

S&P GLOBAL RAT INGS has lowered its average crude oil price forecast to $55 per barrel in 2019, a reduction of $10 per barrel as a result of slower global demand growth and rising global inventory levels.

Brent crude futures plunged from a peak of $86 per barrel in early October to briefly trade below $50 per barrel at the end of December.

“The on-going trade war between the US and China as well as news of China’s economic slowdown, has led to concerns about the outlook for global demand,” S&P Global Ratings said in a statement with its new price assumptions.

A series of events preceding the plunging oil prices were largely responsible. One of which was the reinstated sanctions on Iranian oil imports. US sanctions fell short of expectations after it granted waivers to eight producers for six months including pivotal buyers China and India.

Also, Saudi Arabia and Russia were both pumping more than 11 million barrels per day at that time in a bid to offset the risk of lost Iranian barrels, which instead left the market awash with crude oil.

“The Organization of Petroleum Exporting Countries (OPEC), particularly Saudi Arabia and Russia, were producing at record levels to offset what was expected to be a meaningful reduction in global supply due to the Iranian economic sanctions,” it explained.

In an attempt to bring stability back to the oil market, OPEC announced a 1.2 million barrels per day, but the rating agency noted that the OPEC announcement “did little to stem the decline in oil prices as concerns about global demand and whether OPEC would honour the production cuts, continued to put pressure on prices” but said “the production cuts at a minimum, will offset the anticipated growth in 2019 from US shale production.”

Much of the US shale production will come from the Permian Basin, which is constrained by a lack of pipeline capacity. S&P Global Ratings argues that “production from the region has bumped right up against the 3.4 million barrels per day of regional take out capacity.”

However, S&P Global Platts expects an additional 2.6 million barrels per day of pipeline capacity will come on line in 2019 and in early 2020, so the clock is ticking on OPEC’s efforts to rebalance the market.

Analysts have been revising their forecasts amid a rising tide of uncertainty over the economy, Iran sanction waiver extensions, US shale output and OPEC cuts.

Another leading rating agency, Moody’s has also recently noted concerns about the oil market and set a $5070 per barrel range for WTI in the medium term, according to a press release issued Thursday.