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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Banks See Oil Prices Staying Low Despite Attacks On Saudi Oil

Concerns about faltering global oil demand and expectations of rising U.S. crude oil exports trump fears of supply shortage after the attacks on Saudi oil and have investment banks predict that oil prices would not move much higher in the fourth quarter, a poll of 13 major investment banks by The Wall Street Journal showed on Friday.  

Although the attacks on Saudi oil infrastructure on September 14 knocked 5.7 million bpd—or 5 percent of global oil supply—offline, Saudi Aramco is busy reassuring the market that full capacity is back online and not a single shipment of crude oil will be missed.

According to the WSJ poll, banks expect Brent Crude prices to average US$64.31 a barrel in Q4, basically unchanged from last month’s poll estimate. WTI Crude prices are forecast to average US$58.24 per barrel in Q4, slightly up from last month’s estimate of US$57.82 per barrel, the WSJ poll showed.

As of 08:30 a.m. EDT on Friday, Brent Crude was down 1.1 percent at US$61.06 and WTI Crude was down 0.9 percent at US$55.90, with both benchmarks headed for a weekly loss, due to a faster than expected Saudi oil comeback, rising U.S. commercial inventories, and slowing Chinese economic growth that rekindled fears of slowdown in oil demand growth.

The WSJ poll also showed that the major investment banks expect oil prices to be lower in 2020 than in the fourth quarter of 2019. Brent Crude is seen averaging US$61.95 per barrel next year, and WTI Crude is forecast to average US$56.55 a barrel.  

Further slowing global economic growth and rising takeaway capacity out of the Permian to the U.S. Gulf Coast for exports will be two key drivers of the oil market later this year and at the beginning of next year, Harry Tchilinguirian, Head of Commodity Research at BNP Paribas, told The Journal.

The United States is expected to emerge as “a super exporter,” and this wave of new supply will put downward pressure on oil prices, Tchilinguirian said. Related: Volkswagen Denies It’s Interested In Buying Stake In Tesla

Some analysts, however, caution that the market is underestimating the supply security risk in the aftermath of the attacks in Saudi Arabia.

“Participants are clearly not concerned about Saudi supply, with Aramco reportedly returning production quicker than anticipated. Nor do they seem overly concerned with the risk of further such attacks in the future,” Warren Patterson, ING’s Head of Commodities Strategy and Senior Commodities Strategist Wenyu Yao, said on Friday.  

“We continue to believe the market is underpricing the current geopolitical risk,” ING’s strategists said.

 By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on September 29 2019 said:
    The 13 major investment banks are basing their projection of oil prices on two assumptions. The first is a continued trade war between the United States and China and the second is believing Saudi assurances that full capacity is back on line after the loss of 5.7 million barrels a day (mbd) or 57% of Saudi oil production capacity in the aftermath of the attacks in Saudi oil infrastructure.

    A continuation of the trade war would continue to impact adversely on global oil demand and prices. In such a situation, an oil price of $64 or thereabouts might be right.

    However, President Trump will be under heavy pressure to end the war if he is to improve his chances of winning the 2020 presidential elections for four more years in the White House. Furthermore, he knows that he has already lost the trade war so there is no advantage to be gained from prolonging it. An end to the war could immediately push up prices to $75-$80 a barrel.

    Saudi Arabia is being very economical with the truth when assuring the global oil market that full capacity is back online. While it is true that Saudi Arabia is able to meet its obligations to customers by drawing on its stored oil estimated at 130 million barrels (mb), that volume could be depleted totally in less than one month if repairs to the damaged oil facilities take more than a month. It is estimated by contractors and fabricators contacted by the Wall Street Journal that repairs and manufacturing of equipment needed to replace the damaged ones could take months rather than weeks. In such a situation, oil prices could be headed far above $80.

    My advice to investment banks is to verify Saudi assurances and the timetable for the repairs before making a judgement on oil prices.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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