Morgan Stanley has cut its Brent crude price forecast for 2019 by US$10 a barrel to US$68.50 in the latest sign yet that the OPEC+ production cuts announced after a tense series of meetings might fail to impress an already supervolatile market.
The investment bank, Forex Live reports, acknowledged that the OPEC+ agreement to remove 1.2 million bpd from the global oil market beginning in January will have a positive effect in as much as it would calm worry about a looming oversupply, but this upside for prices will be limited. Morgan Stanley warned that the highs Brent and WTI enjoyed in October before they took a nosedive are hardly in the card for the next four quarters.
Even so, Morgan Stanley saw the oil production cut as "likely sufficient to balance the market in 1H19 and prevent inventories from building", according to a Reuters report. At the end of June 2019, the investment bank expects Brent to climb to US$67. 50 a barrel, versus an earlier forecast for US$77.50 a barrel.
Bernstein Energy seems to agree with Morgan Stanley. Reuters quoted the brokerage as forecasting the average price per barrel of Brent crude next year to remain about US$70. "Our key conclusion is that oil prices will be well supported around the $70 per barrel level for 2019," Bernstein said.
Not everyone is optimistic, however. Reuters also quoted an Emirates NBD bank analyst as saying the cuts would not be enough to offset growing production from non-participants in the cuts. Edward Bell said he expected "a market surplus of around 1.2 million bpd in Q1 with the new production levels." With the U.S. producing at a rate of 11. 7 million bpd and most indicators suggesting further increases, the oversupply scenario may well play out, sinking prices even lower.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
The global oil market fundamentals are still robust and are projected to be almost as robust in 2019 as they were in 2018. Moreover, Morgan Stanley should realize that the new OPEC/non-OPEC production cuts will take some time before they impact oil prices as was the case with the previous cuts implemented in January 2017.
I believe that oil prices supported by the current robust fundamentals and also by a decline in the glut in the market could support an oil price higher than $80 a barrel in 2019.
US oil production has relatively limited impact on the global oil market and prices for two major reasons. The first is that US exports of 2 million barrels a day (mbd) are too small to impact on oil prices. The second reason is that US oil output figures are overstated by at least 2 mbd.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London