Oil prices are heading lower this year and even lower in 2019, JP Morgan forecasts

CNBC

  • Oil prices are heading for a downturn later this year and will sink even lower in 2019 as the fundamentals of supply and demand weaken, J.P. Morgan forecasts.
  • Crude futures could have one last “hurrah” if OPEC eases its production caps, but the rally would likely be short-lived, the bank says.
  • Growth in oil consumption looks weaker than anticipated due to softer-than-expected economic growth in Europe, Latin America and the Middle East.
People work at the Halfaya oilfield in Amara, southeast of Baghdad, Iraq.

Essam Al-Sudani | Reuters
People work at the Halfaya oilfield in Amara, southeast of Baghdad, Iraq.

Oil prices are heading for a downturn later this year and will sink even lower in 2019 as the fundamentals of supply and demand weaken, J.P. Morgan forecast in a research note on Friday.

“While geopolitical tensions and lingering risks of large supply disruptions remain an upside risk throughout 2H18, we think that prices will be corrected downwards towards end of the year and remain capped in 2019,” J.P. Morgan analyst Abhishek Deshpande wrote in the note.

Despite oil prices recently rising to 3½-year highs, the investment bank left its forecast for international benchmark Brent crude unchanged at $69.30 a barrel. On Friday, Brent was trading at just under $77 a barrel, off its recent high of $80.50.

J.P. Morgan now sees U.S. West Texas Intermediate crude averaging $62.20 a barrel, down $3 from its last estimate. WTI was trading at nearly $66 a barrel Friday, after nearly touching $73 a barrel two weeks ago.

The bank knocked down its 2019 Brent forecast by $1, to $63 a barrel. It lowered its outlook for WTI slightly to $58.25 a barrel.

June's OPEC meeting might be one of the worst since 2011, says expert

June’s OPEC meeting might be one of the worst since 2011, says expert  

An OPEC meeting in two weeks will determine the short-term price movement, the bank says. Oil market heavyweights Russia and Saudi Arabia have recently signaled they could ease a deal between the 14-member OPEC and other producers to limit output, which has been in place since January 2017.

The Saudis and Russia are wary of prices rising high enough to dent demand as Venezuela’s output continues to decline amid an economic crisis and as U.S. sanctions come into force against Iran, OPEC’s third-biggest producer. Oil prices suggest the market is betting on an output increase of about 400,000 barrels a day, according to J.P. Morgan.

“We think there might be one last hurrah (upside) when it comes to prices especially if OPEC were to announce a release of barrels which is less than what markets have priced in currently,” Deshpande said.

Still, J.P. Morgan thinks the rally would unwind. That’s because any move by OPEC to ease output caps would signal a return to pre-2017 production levels. It would also tip the finely balanced oil market towards oversupply starting in the fourth quarter, when the restored barrels are likely to start arriving at import terminals.

J.P. Morgan already believes the supply-and-demand fundamentals of the market are poised to weaken.

Higher oil prices are putting pressure on India's inflation target: Analyst

Higher oil prices are putting pressure on India’s inflation target: Analyst  

The bank expects oil demand to grow more slowly than previously anticipated, which correlates to J.P. Morgan’s downward revisions to economic growth in Europe, Latin America and the Middle East.

On the supply side, global output is poised to rise by 2 million barrels a day in 2018, 200,000 barrels a day higher than J.P. Morgan’s last forecast. Supply from outside OPEC is set to rise by 2.2 million barrels a day, driven by a surge in output from the United States, which is quickly closing in on top producer Russia, which pumps about 11 million barrels a day.

J.P. Morgan does see a path to a higher oil price in 2018 and 2019. In its high-case scenario, Brent averages $74.55 a barrel this year and $78.75 next year. The catalysts for a higher price include OPEC and Russia extending their output limits into 2019 and the wealth of geopolitical risks throughout the market.

“The risk of oil prices gravitating towards the high case remains high given the rise in geopolitical tensions and potential risk to large scale disruptions to oil supply from key oil producing countries such as Iran and Venezuela in particular,” Deshpande said.

Crude Oil Prices – Weekly Outlook: Feb. 12 – 16

 
© Reuters. Oil prices drop nearly 10% for the week, worst loss in almost two years © Reuters. Oil prices drop nearly 10% for the week, worst loss in almost two years

Investing.com – Oil prices finished lower for a sixth straight session on Friday to tally their worst weekly loss in two years, as investors continued to fret over soaring U.S. output levels.

Steep losses in the global stock market this week and a strengthening dollar also contributed to oil’s losses.

U.S. West Texas Intermediate (WTI) crude futures for March delivery sank $1.95, or around 3.2%, to close at $59.20 a barrel. It fell to its worst level since Dec. 22 at $58.07 earlier in the session.

Meanwhile, April Brent crude futures, the benchmark for oil prices outside the U.S., tumbled $2.02, or roughly 3.1%, to settle at $62.79 a barrel, after it touched a more than nine-week low of $61.77 earlier in the day.

For the week, WTI crude lost roughly 9.6%, which was the biggest such decline since January 2016, while Brent gave up about 8.5%.

The number of oil drilling rigs jumped by 26 to 791 last week, General Electric (NYSE:GE)’s Baker Hughes energy services firm said in its closely followed report on Friday.

That marked a third straight week of increases and the largest weekly rise in more than a year, implying that further gains in domestic production are ahead.

That came after data on Wednesday showed U.S. oil production, driven by shale extraction, rose to an all-time high of 10.25 million barrels per day (bpd). That figure is above that of top exporter Saudi Arabia and within reach of Russia’s output levels.

That added to fears that rising U.S. output would dampen OPEC’s efforts to rid the market of excess supplies.

The producer group, along with some non-OPEC members led by Russia, agreed in December to extend oil output cuts until the end of 2018.

The deal to cut oil output by 1.8 million barrels a day (bpd) was adopted last winter by OPEC, Russia and nine other global producers. The agreement was due to end in March 2018, having already been extended once.

Among other energy contracts, March gasoline futures slumped 6.4 cents, or 3.6%, to end at $1.700 a gallon on Friday, with prices suffering a weekly loss of around 9.2%.

Heating oil for March edged down 6.6 cents, or 3.4%, to $1.855 a gallon, posting a weekly drop of around 9.7%.

Meanwhile, natural gas futures plunged 11.3 cents, or 4.2%, to $2.584 per million British thermal units, its lowest finish since late February 2017, for a weekly decline of 9.2%.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer and how fast output levels will continue to rise.

Oil traders will also focus on monthly reports from the Organization of Petroleum Exporting Counties and the International Energy Agency to assess global oil supply and demand levels.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday

The Organization of Petroleum Exporting Counties will publish its monthly assessment of oil markets.

Tuesday

The International Energy Agency will release its monthly report on global oil supply and demand.

Later in the day, the American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday

The U.S. government will also publish a weekly report on natural gas supplies in storage.

Friday

Baker Hughes will release weekly data on the U.S. oil rig count.

Oil prices fall as US output soars above 10 million bpd

CNBC

  • Oil prices on Thursday were close to their lowest levels this year, with soaring U.S. output undermining OPEC’s efforts to tighten markets and prop up prices.

Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Jonathan Alcorn | Reuters
Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Oil prices on Thursday were close to their lowest levels this year, with soaring U.S. output undermining OPEC’s efforts to tighten markets and prop up prices.

Brent crude futures were at $65.28 per barrel at 0104 GMT, down 23 cents, or 0.4 percent, from the previous close.

U.S. West Texas Intermediate (WTI) crude futures were at $61.58 a barrel. That was down 21 cents, or 0.3 percent, from their last settlement.

The dips follow bigger falls on Wednesday, when crude touched one-month lows and erased most of 2018’s early gains.

Some support on Thursday came from the second outage in as many months on the 450,000 barrels per day Forties pipeline network, Britain’s biggest, which supplies much of the crude underpinning Brent futures.

But the biggest market driver was U.S. production. What’s long been expected is now official: U.S. crude oil output averaged above 10 million barrels per day (bpd) for the first time since the early 1970s last week, reaching 10.25 million bpd.

A lot of uncertainty around oil price this year, seen stable demand growth, continued rebalancing this year

Expect continued rebalancing of the oil market this year: Statoil CEO  

Until the early 2000s the United States were oil starved, importing a peak of 12 million bpd.

But in one of the steepest rises of any oil producer in modern history, U.S.output has surged by more than 20 percent since mid-2016, undermining OPEC’s and Russia’s efforts to tighten the market and prop up prices by withholding production.

In fact, the OPEC-led restraint was arguably the biggest enabler for America’s production boom, handing over market share at higher oil prices.

At 10.25 million bpd, U.S. output is now higher than the previous 10.044 million bpd record from back in 1970.

It’s above that of top exporter Saudi Arabia’s and within reach of Russia’s.

Weighing further on prices was that U.S. commercial crude stocks rose by 1.9 million barrels in the week to Feb. 2, to 420.25 million barrels.

Runaway production

The official U.S. Energy Information Administration (EIA) this week upped its 2018 output forecast to 10.59 million bpd, up by a whopping 300,000 bpd from their last forecast just a week earlier.

“What surprised the most was the large spike in oil production to 10.25 million barrels per day which was significantly higher than 9.92 million from the previous week,” said Fawad Razaqzada, market analyst at futures brokerage Forex.com.

“Clearly, the data points to an imbalanced market and oil prices have responded by turning sharply lower,” he added.

Oil prices dip as US output rises, but still on pace for monthly gains

CNBC

  • Oil markets remain supported by OPEC-led production cuts.
  • A weakening dollar has also supported crude futures.
  • However, U.S. production is expected to hit 10 million barrels per day soon, and Canadian output is also rising.

Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Jonathan Alcorn | Reuters
Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Brent crude oil prices eased below $70 a barrel on Monday as rising U.S. output undermined efforts led by OPEC and Russia to tighten supplies, but prices were still on track for a monthly gain.

Brent crude futures were down 92 cents, or 1.3 percent, at $69.60 a barrel by 10:58 a.m. ET (1558 GMT), while U.S. West Texas Intermediate (WTI) crude futures fell 79 cents, or 1.2 percent, to $65.35 a barrel.

So far this month, the Brent crude price has risen by 5.5 percent through last Friday’s close.

One of the key drivers has been the dollar, which has lost about 3 percent against a basket of major currencies so far this year.

Prince Alwaleed’s release is a relief for oil  

The decline was exacerbated last week when U.S. Treasury Secretary Steven Mnuchin suggested President Donald Trump‘s administration favored a weaker currency.

A falling dollar tends to support oil, which is priced in the U.S. currency, by making it cheaper for holders of other currencies.

Support has also come from a large premium in the front-month Brent oil contract over those for future delivery, as investment in crude futures and options reached a new record high last week.

“The market is bullish. One side that could correct significantly could come from the strength in the U.S. dollar,” PVM Oil Associates strategist Tamas Varga said.

“Undoubtedly, whatever the strategy is of Donald Trump and his finance ministry, they managed to support oil prices in the last week by talking the dollar down, so if we see a big (upward) correction in the dollar then we’ll probably see a (downward) correction in oil.”

In the last couple of months, oil has tended to move inversely to the dollar, as weakness in the currency makes it cheaper for non-U.S. investors in crude to buy and vice versa.

Despite generally bullish sentiment, analysts said the market had been dented by rising output in North America.

The ‘wobbly leg’ in oil markets  

U.S. crude production has grown by over 17 percent since mid-2016 to 9.88 million barrels per day (bpd) in mid-January. It is expected to break through 10 million bpd soon.

U.S. energy companies added 12 oil rigs drilling for new production last week, taking the total to 759, energy services firm Baker Hughes said on Friday.

U.S. production is already on par with top exporter and OPEC kingpin Saudi Arabia. Only Russia produces more, averaging 10.98 million bpd in 2017.

There are also signs that Canadian oil production, already at 335,000 bpd, could start to rise as investment in its shale sector picks up. Canada’s overall crude production currently stands at 4.2 million bpd.

U.S. bank JP Morgan said it had increased its 2018 average price forecast by $10 per barrel to $70 per barrel for Brent and by $10.70 per barrel for WTI to $65.63.

“We expect Brent to touch close to $78 per barrel towards end of Q1 2018 or early Q2 2018,” it added.

— CNBC’s Tom DiChristopher contributed to this report.

Oil price rally will not persuade OPEC to end production cuts, analyst says

CNBC

  • Crude futures have climbed to highs not seen since the early days of a slump in December 2014, prompting some analysts to suggest the recent price rally could hasten the process of OPEC devising an exit strategy
  • “We will see compliance drop in the second half of the year (so) they are going to want to really cement the gains they have made and the rebalancing they have achieved,” Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC on Friday
  • In recent weeks, big investment banks have raised their target price for oil as crude futures have risen to multi-year highs

Nervousness about what oil ministers say

Market views future of OPEC deal as a binary: Energy Aspects  

The recent uptick in oil prices is not likely to be enough to persuade OPEC to end production cuts this summer, Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC on Friday.

Crude futures have climbed to highs not seen since the early days of a slump in December 2014, prompting some analysts to suggest the recent price rally could hasten the process of OPEC devising an exit strategy. Brent crude futures hit a peak of $70.37 a barrel on Monday, with the global benchmark since paring some of its recent gains to trade at $68.90 on Friday afternoon.

However, when asked at what stage oil traders could expect OPEC to begin phasing out the current level of production cuts, Mallinson said the major oil producing group would need to wait until the middle of 2018 before it could “confidently” feel the market had leveled out.

Nonetheless, he did not expect the 14-member cartel to end its deal with 10 other allied producers in June.

“We will see compliance drop in the second half of the year (so) they are going to want to really cement the gains they have made and the rebalancing they have achieved,” he added.

Big banks raise oil price targets

In recent weeks, big investment banks have raised their target price for oil as crude futures have risen to multi-year highs.

Bank of America Merrill Lynch and Morgan Stanley both upped their forecasts for crude prices this week, while Goldman Sachs said the risks of prices overshooting its current targets are mounting.

Pumpjacks in an oil field.

Paul Giamou | Aurora | Getty Images
Pumpjacks in an oil field.

The main price driver has been a supply cut from OPEC and Russia, who started to withhold output in January last year. The OPEC-led production cuts, that are scheduled to last throughout 2018, are aimed at clearing a supply overhang and propping up prices.

OPEC is next scheduled to meet in Vienna, Austria, on June 22.

Mallinson said that while it was understandable for oil traders to be wary of the group’s summer meeting, he emphasized they would be mistaken in thinking the major oil producing group’s only options were to either stick with the current level of supply cuts or to allow flat-out global production.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC’s reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016.

— CNBC’s Tom DiChristoper contributed to this report.