Strong global oil demand growth, quickly falling inventories, and geopolitical issues from Iran to Venezuela could push oil prices to as high as $100 a barrel in 2019, Bank of America Merrill Lynch says.
Brent Crude is expected to average $70 a barrel this year and $75 in 2019, BofA’s commodity strategists led by Francisco Blanch said in a note, as carried by Business Insider.
At 12:27 p.m. EDT on Thursday, oil prices were flat on the day, with Brent Crude at $77.17 and WTI Crude at $71.14.
“We also introduce a 2Q $90/bbl Brent price target for 2019 and see a risk of $100/bbl oil next year, although we are concerned that these market dynamics could unfold over a shorter timeframe,” Blanch wrote in the note.
This year demand growth is expected at 1.5 million bpd, BofA says, and revised up its 2019 demand growth by 100,000 bpd to 1.4 million bpd.
Venezuela’s plunging production and the return of U.S. sanctions on Iran could keep exports lower amid tighter market. BofA doesn’t expect Iran’s crude oil exports to change much in the coming months.
OPEC could start winding down the production cut pact next year, but increased production may not be sufficient to offset a fast inventory drop, according to Blanch.
In the United States, producers could scale back production because of a strained supply chain, BofA reckons.
“In short, the micro drivers of the oil market remain positive, as long as global demand does not suffer from the ongoing threats of trade wars and policy uncertainty,” Blanch said. Related: The Real Reason Trump Killed The Iran Deal
“With stocks falling quickly during the course of the next 18 months, we would expect continued upside pressure on crude oil prices and see Brent averaging $75/bbl in 2019 compared to $70/bbl this year,” BofA analysts noted, adding that a stronger dollar poses a risk to the high oil price forecast.
Goldman Sachs, for its part, said on Wednesday that increased geopolitical tensions in the Middle East, plunging Venezuelan production, and now the U.S. withdrawal from the Iran nuclear deal could push Brent Crude prices to $82.50 a barrel by the summer.
By Tsvetana Paraskova for Oilprice.com
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With oil prices surging mostly as a result of strong fundamentals in the global oil market, a virtual re-balanced market and a few geopolitical concerns, both analysts and banks are jumping on the band wagon of forecasters to tell us that the oil price will average $70 a barrel this year when the price is already above $77 and heading towards $80. The price this year could average $75 a barrel. By next year, the price could average $80 hitting $100 or higher in 2020.
And contrary to the banks’ wishful thinking, the OPEC/non-OPEC production cut agreement is here to stay next year and far beyond to continue its role in stabilizing oil prices and also preventing a recurrence of glut.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
High oil prices today are not equal to high oil prices a decade ago which were not equal to the same occurrence five decades ago. Every time this happens, it chips away at the oil industry monopoly on overall energy, either mentally in the for of public grievances or nowadays literally in the form of renewables and EVs. If oil prices do indeed reach 150 or above for a prolonged time, it will be so painful for car companies that they will either fail completely, again (likely leading to government restructuring and requirements to switch to electric) or they will accelerate the transition to EVs themselves and will never look back (assuming they have the funds at that point). Either way, the oil industry is more or less boxed in at this point. Higher prices mean loss of market share to alternatives, lower prices mean lack of income and debt. As things progress, this box will get tighter and harder to manage. Meanwhile, renewables and EVs are becoming more cheaper and more capably every year.