Wall Street analysts predict oil “two-part history” for the prices of both WTI and BRENT varieties in 2019
According to the forecast, the price of oil will begin to recover in the first six months of the new year, interrupting the massive sell-off series, which since October 2018 has led to a 40% drop in crude oil. It sounds encouraging, but in the second half of 2019, analysts expect new counter-winds for the oil market.
The conclusion is that Wall Street expects some oil recovery in 2019. Investment banks predict that the BRENT oil will average between $ 68 and $ 73 a barrel next year. Forecasts for US crude oil are to stabilize the price between $ 59 and $ 66 a barrel.
The BRENT variety went for $ 50 a barrel for the first time since July 2017, while crude oil bounced off its nearly two-year low at $ 42.36. Both benchmarks have lost more than 40% of their value. The decline was due to poor forecasts for economic growth and depressed demand for raw materials due to strong output from producers – the US, Russia and Saudi Arabia.
While the prospects for 2019 are a bit more optimistic, they remain so at some point. For the end of the year, analysts warn that prices for both varieties would make extreme moves outside of the ranges. The risks that would re-create volatility in the oil market are closely monitored macroeconomic indicators for the US economy, the trade war between Washington and Beijing, and the still underestimated threats posed by the worsening of the Asian refiners.
The key factors that will trigger the recovery process in the coming months will be OPEC’s policy and North American oil production. OPEC, Russia and several other oil producers will put in force their new yield limits in January. This will limit the daily yield by 1.2 million barrels per day. This attempt to restraint began in January this year, but in June it was again raised because of the sanctions imposed on Iran from the United States. Iran is the third largest oil producer, member of OPEC.
The Alliance will align with the pace of extraction from Alberta, Canada. According to representatives there, there is an order to cut production by 325,000 barrels in order to reduce oil reserves. The region has a problem with barrel storage due to the lack of sufficient infrastructure to facilitate the storage and transport of barrels.
On the horizon, however, there are sufficient risks that would jeopardize the effect of OPEC measures to reduce yields. This puts at risk one of Wall Street’s worst forecasts for next year. These yield limitations would encourage US oil platforms to grow faster, boosting oil supply to markets, which will surely cause another sale.
Macroeconomic conditions will play a key role. Analysts predict that economic growth will remain relatively stable in early 2019, which will also support strong demand for fuels. This growth is expected to slow down in 2020.
Still, the slight skirmishes between the US and China are still under way, but with every subsequent tariff imposed, it can unleash a fierce trade war. If they do not reach a deal in the coming months, the two countries are able to impose sanctions on absolutely all goods.
The slowdown in the Chinese economy will surely weigh on the energy markets. Asia is currently the main consumer of oil, while this consumption is bordered by an anemic state in Western countries.
Trader Martin Nikolov