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What Does OPEC’s Strategy Shift Mean for the Oil Market?

What Does OPEC’s Strategy Shift Mean for the Oil Market?

OPEC+ changes course, announcing plans…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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UBS: Expect $80 Brent Next Year


Unlike some investment banks that were quick to revise down their forecast for crude oil benchmarks next year, Swiss UBS is rather bullish: its head of asset allocation for APAC, Adrian Zuercher, says Brent crude could rebound to US$70 and even US$80 a barrel over the next 12 months.

Speaking to CNBC, Zuercher noted that while supply of crude oil was still abundant, this could soon change as the OPEC+ production cuts enter into effect. While the recent oil price drop suggests many don’t believe these cuts will be as effective as the first ones in 2017, Zuercher noted a report by the Wall Street Journal that Saudi Arabia plans to cut more than initially expected, and the fact that Venezuela’s production would likely continue downwards as would Iran’s under the weight of U.S. sanctions.

The current slump in oil prices, the UBS analyst says, was a result of the double blow of Iran sanction waivers and record-high production from, among others, Saudi Arabia prior to the latest cut deal. Initially, Saudi Arabia said it would take on a 500,000-bpd cut from the total OPEC-wide 800,000 bpd agreed at the Vienna meeting. This is a certainly large cut but it is based on cutting from record-high production rates of over 11 million bpd. Related: $50 Oil Won’t Kill U.S. Shale

Demand, according to Zuercher is also strong, especially in China. Indeed, China’s oil imports in October hit an all-time high, but that was at least party due to teapot refiners seeking to use up their import quotas before they expire at the end of the year.

UBS is not the only bullish bank: Goldman Sachs also expects oil prices to recoup some of the losses they suffered in the last couple of months next year. JP Morgan, however, last month cut its Brent crude forecast from US$83.50 a barrel in 2019 to US$73. Citigroup, for its part, is in the middle: the investment bank does not expect huge changes in oil prices next year as rising production in the U.S. would offset the OPEC+ cuts. Citi expects Brent to average US$60 a barrel.

By Irina Slav for Oilprice.com

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  • zorro6204 on December 21 2018 said:
    If history is any guide, one thing is certain, all these predictions will be laughably wrong 12 months from now.

    In which direction, that's anyone's guess. There's no bottom in an over-supplied oil market, we've already seen that, so probably to the downside. Any tightness in the market would be artificial, so prices are unlikely to run away if the market knows the Saudi's could just open the taps.
  • Mamdouh G Salameh on December 21 2018 said:
    The UBS forecast is like a breath of fresh air among the overwhelming number of analysts and investment banks whose forecasts tend to be as fickle as the recent oil price volatility and not based on a correct reading of the global oil market.

    With the global oil fundamentals still robust and projected to be virtually as robust in 2019 as they were in 2018 and with China’s insatiable thirst for oil, one could be confident of the return of the bullish forces into the market and a surge of oil prices in 2019.

    The recent slump in oil prices could be attributed to three major very important factors. The first is the realization by the global oil market that US sanctions have failed completely so far to cost Iran a single barrel of oil and consequently the risk of supply shortage has not materialized despite claims by the overwhelming majority of analysts and investment bankers that Iran will lose 500,000 barrels a day (b/d) to 1.5 million barrels a day (mbd).

    The second factor is US manipulation of global oil prices by falsifying claims about rising US oil production and significant build-up in US crude and products inventories and hiking the value of the US dollar opposite other currencies.

    A third factor is that there is still a small glut in the global oil market. This glut was augmented in June when Saudi Arabia and Russia jointly added 650,000 barrels a day (b/d) to the market.

    China’s oil imports have now exceeded 10 mbd and could even hit 11 mbd before the end of the year. Moreover, a reading of the Saudi budget for next year shows that it is an optimistic budget based on an oil price around $80 a barrel next year.

    Saudi Arabia will ensure that the recently agreed OPEC/non-OPEC cuts will help bring some balance to the global oil market.

    I have no doubt whatsoever that that bullish factors in the global oil market will prevail in 2019 enabling prices to resume their surge upwards.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Amvet on December 24 2018 said:
    The US needs low oil prices and US controlled agencies, banks, and media continually try to talk the oil price down.
  • Tony on December 25 2018 said:
    One day when the American Oil bluff ( like the dot.com bubble!) explote!
    We will go back and use the bicycle ! The Oil price can rocket without any
    problem over $300 barrel !
  • John Brown. on December 25 2018 said:
    It’s certainly possible that pure Greed could push Brent to $80 & WTI over $70 if OPEC & Russia agree to idle enough capacity. They are likely stupid & greedy enough to do that. They will further hammer world growth & induce the shale oil & gas industry to remain in overdrive but pure greed seems to have blinded them to the fact they aren’t the only game in town anymore. UBS’s fantasy forecast pushed by their own greed & energy industry based revenues & profits could well become fact but if it does it just sets the stage for another crash.

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