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.

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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.

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.

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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.

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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 prices firm on expected OPEC cut extension

CNBC

  • Oil prices firmed Wednesday after a reported fall in U.S. crude inventories and on expectations that an OPEC-led ouput cut will be extended beyond March 2018
  • Brent crude futures were at $62.81 per barrel, up 0.4 percent from their last close
  • U.S. West Texas Intermediate crude futures were at $57.31 a barrel, up 0.8 percent

An oil well owned and operated by Apache Corporation in the Permian Basin are viewed on February 5, 2015 in Garden City, Texas.

Spencer Platt | Getty Images
An oil well owned and operated by Apache Corporation in the Permian Basin are viewed on February 5, 2015 in Garden City, Texas.

Oil prices firmed on Wednesday after a reported fall in U.S. crude inventories and on expectations that an OPEC-led production cut aimed at tightening the market will be extended beyond March 2018.

Brent crude futures, the international benchmark for oil prices, were at $62.81 per barrel at 0112 GMT, up 24 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $57.31 a barrel, up 48 cents, or 0.8 percent.

Traders said markets were generally well supported by an effort led by the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC producers led by Russia to restrain output in a bid to end a global supply overhang.

The deal to curb output is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss the outlook for the policy.

“All eyes remain focused on the OPEC’s flux and reflux heading to Vienna as the meeting’s outcome will ultimately determine oil prices’ near-term fate,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA.

JPMorgan said in its 2018 commodities outlook, released late on Tuesday, that “oil markets in 2018 will be balanced on the back of extended OPEC-NOPEC production cuts,” but added that without extended cuts “markets will be in surplus.”

The U.S. bank said “we expect Brent to trade at the top of the $40 to $60 per barrel range, with Brent averaging $58 per barrel in 2018. WTI is expected to average $54.6 per barrel.”

Traders said there was also some price support from a weekly report on Tuesday by the American Petroleum Institute which said U.S. crude inventories fell by 6.4 million barrels in the week to Nov. 17.

Despite this, traders said crude markets were somewhat capped by rising production in the United States, which has jumped by almost 15 percent since mid-2016 to 9.65 million barrels per day.

“While an extension of the OPEC deal to limit production may inspire oil bulls short-term, the rising U.S. output is likely to present headwinds, ultimately limiting upside gains,” said Lukman Otunuga, analyst at futures brokerage FXTM.

The latest official U.S. production and inventory data is scheduled for release later on Wednesday.