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Commodities comment: Brent crude prices forecast to trade around $80


ICE Brent crude prices are expected to continue to move slightly higher in the coming quarter and trade on average at around $80 a barrel, according to forecasts by Societe Generale.

This is not far from where oil prices are trading this morning: Brent crude at $78.17/bbl, up 0.54% on the day, and at the same level Brent crude reached last week. In contrast WTI is trading at $67.39/bbl, down 1.17%, after the American Petroleum Institute reported that US crude oil inventories increased by 1.001 million barrels against expectations that the stock levels would increase by 2.214 Mb.

Crude oil prices are being driven by OPEC speculation

The bank’s analysts say that in terms of fundamentals for oil prices, the biggest change is expected in the supply from OPEC and Russia. The oil cartel and the world’s largest oil producing country are expected to increase output from June by as much as 1 million barrels a day to offset losses from Venezuela and the expected impact of oil sanctions on Iran.

Outside of OPEC, the pace at which the US is increasing its oil output is expected to slow down next year but this is unlikely to create any kind of shortage in the market because a number of countries will produce significantly more oil next year, including Canada, Brazil, Kazakhstan and Russia. Still, the US continues to be the most important driver for non-OPEC supply as a whole.

As discussed previously by The Armchair Trader the gap in prices between crude oil prices in Europe and WTI in the US is being kept unusually wide this year by a sharp rise in the US oil output and the consequent localised oversupply.

Oil demand to remain high for the rest of the year

“We expect global oil demand to remain healthy and project growth of 1.6 Mb/d in 2018 and 1.4 Mb/d in 2019,” said Michael Haigh at Societe General Commodities Research. While the bank’s macroeconomic team expects a minor slowdown in global GDP growth from 3.9% this year to 3.7% next year, this is an environment that will support higher oil prices.

SG expects that global crude oil stocks will be reduced by 0.30 Mb/d in 2018 only to make up for it next year with an increase of 0.36 Mb/d. Focusing on oil stocks in OECD countries, SG expects to see inventories drawing by a significant 0.46 Mb/d this year and building by a minimal 0.16 Mb/d next year.

“The minimal stock builds next year mean that this year’s draws should continue to provide price support, and downward price pressure will have only a limited effect. In other words, the substantial 2018 OECD stockdraws are the key factor driving our moderately bullish crude price outlook all the way through 2019,” Haighs said.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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