Oil bulls charge as stability returns to market
Oil prices are expected to achieve an equilibrium mark during the first quarter of 2019 and then remain stable for the rest of the year.
Dubai - Prices seen to maintain upward trend on US-China trade talks, Opec production cuts
By Muzaffar Rizvi
Published: Sat 12 Jan 2019, 7:13 PM
Last updated: Sat 12 Jan 2019, 9:21 PM
Oil prices are expected to continue their upward trend amid expectations that the US-China trade war will be solved and Opec+'s decision to implement a 1.2 million bpd production cut will shrink an oil glut that emerged in the second half of 2018.
West Texas Intermediate (WTI) and Brent saw their second week of gains, with WTI climbing about 7.6 per cent - the best showing in six months - and Brent rising about six per cent. The two benchmarks ended the week at $51.99 and $60.48 a barrel, respectively.
The implementations of a supply cut deal by the Organisation of the Petroleum Exporting Countries (Opec) and its allies and lower Iran oil exports due to US sanctions also supported the two benchmarks to strengthened their gains in 2019 after facing a volatile fourth quarter last year. "We think the rally in oil prices has further to run in the first quarter," Standard Chartered wrote in a latest note.
Oil prices, which fell for the first time in two weeks on Friday, are expected to achieve an equilibrium mark during the first quarter of 2019 and then remain stable for the rest of the year. Investment banks and consultancies see that oil will be stable above $60 a barrel.
"Oil prices are likely to trade between $60-70 a barrel by mid-2019," according to Arab Petroleum Investments Corp (Apicorp).
Indosuez Wealth Management, in its global outlook 2019 report, assumed that WTI's price will be ranging between $60-$65 per barrel this year.
Morgan Stanley does see a "partial rebound" of Brent oil prices into the mid-$60s. "The oil market looks to be broadly balanced in 2019, an improvement on 2018 which turned out oversupplied," Morgan Stanley analysts Martijn Rats and Amy Sergeant wrote in a note. "This supports a partial oil price recovery."
The US investment bank says the plunge in oil prices has 'overshot', with the selloff having been magnified in December due to the global financial turmoil. The oil market was oversupplied by about 0.6 million barrel per day in 2018, but things look better this year, it added.
Crude prices hit $85 a barrel in October last year and then plunged to around $50 at the end of 2018. It staged a recovery in 2019 as Brent and WTI posted 9.3 per cent and 5.8 per cent increase in prices during the first week of trading in 2019.
Analysts attributed the rise in oil prices to supply cuts implemented by Opec and its allies, including Russia, which has reduced its output to 11.38 million barrels per day (bpd) on average during January 1-10 from a record high of 11.45 million bpd last month to shrink the glut mainly developed due to soaring US production which hit record 11.7 million in 2018. The Energy Information Administration estimated that US production will reach 12.1 million barrels per day in 2019.
Mustafa Ansari, senior economist at Apicorp, said a balanced market is consistent with a wide range of prices, and until the market starts showing signs of stock drawdowns, oil prices will continue to be under pressure.
"As market fundamentals re-assert themselves, the oil price will recover some of its current losses and our base case forecast is for the oil price to trade between the $60-70 per barrel range towards the second half of the year, barring a sharp slowdown in the global economy," Ansari said.
"The dynamics of oil prices in 2019 will also depend in large part on Opec+'s effectiveness in implementing the cuts, balancing the market and reinforcing the credibility of their signals," he added.
S&P Global Ratings also lowered its average annual price assumptions for Brent and West Texas Intermediate (WTI) crude oil for 2019 by $10 per barrel to $55 and $50, respectively.