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OPEC Cut Was Not Easy

13 December, 2018, 22:53 | Author: Lawrence Cooper
  • US investment banks see low oil prices despite OPEC cut

"Our key conclusion is that oil prices will be well supported around the $70 per barrel level for 2019", analysts at Bernstein Energy said on Monday. But amid mounting global uncertainty on everything from trade and monetary policy to politics, that forecast is far from consensus.

The next OPEC and non-OPEC ministerial meeting is scheduled to convene in Vienna, Austria, in April next year.

Despite this, the outlook for next year remains muted on the back of an economic slowdown.

That's despite Saudi Arabia's energy minister Khalid Al-Falih announcing Friday that 900,000 barrels a day of the kingdom's crude will be taken out of the market between November and January, in addition to cuts from OPEC's allies.

Futures in NY were little changed, after Monday's 3.1 percent drop erased gains following last week's pact between Saudi Arabia, Russia and other major producers to curb output.

The eventual decision to cut production by 1.2 million barrels per day (bpd) for the first six months of 2019 provided crude prices with a welcome boost.

"OPEC+ cuts alone may not have been enough to completely convince investors", said Sungchil Will Yun, a senior commodities analyst at HI Investment & Futures Corp., said by phone from Seoul.

He said that the producers chose to meet in April instead of June "to allow us to take the required decision", before the six months are up.

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"The surge in USA supply in recent months should be a reason for caution", Bank of America Merrill Lynch said in a note on Monday.

U.S. crude stockpiles fell by 1.2 million barrels in the week to December 7, the U.S. Energy Information Administration said, smaller than the draw reported by industry group the American Petroleum Institute on Tuesday and less than half the draw of 3 million barrels analysts had forecast. According to PVM, investors have pulled almost $50 billion out of the two major crude oil futures contracts since the latest rout started in October.

On Tuesday, oil prices rose amid broad expectations that the upcoming OPEC meeting would yield a deal on production cut.

Citi, meanwhile, sees oil going nowhere in 2019 and staying at $60 a barrel. The UAE, Opec's fourth largest producer, has been pumping around 3.0 million bpd.

That sentiment was echoed by commodity hedge fund Philipp Oil, which said in an investor letter that while Brent has found a floor of around $60 a barrel after the supply limits were announced, weaker oil demand and booming US shale output will keep markets oversupplied.

US based Capital Economics, meanwhile, sees an average of $63 a barrel over the course of 2019.

Brent for February delivery climbed 23 cents to settle at $60.20 a barrel on London's ICE Futures Europe exchange. Saudi Arabia is now the world's largest oil exporter. Futures settled 2.8 percent lower at $59.97 on Monday.



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