RJ: Updating their Oil Price Forecast - Dec 10

[dan_s]

This morning (12-10-2018) Raymond James sent out the following note.

Over the past few weeks we have attempted to explain why the crude markets have experienced such a sharp and violent correction over the past month.

Specifically, three main issues that triggered the initial oil selloff included
1) Trump “pulling the rug out from under the Saudi’s” by giving Iranian sanction waivers,
2) increasing concerns over global oil demand, and
3) a surge in U.S. oil production trends.

While these three bearish concerns are still at play, the consequences of lower oil prices is now setting the stage for a much tighter oil market next year and the likelihood of sharply higher oil prices in the back half of 2019. Put simply, our global oil supply/demand equation for the next few years is now much more bullish than a month ago because 1) 2019 OPEC supply will be lower with the recent OPEC cuts, and 2) U.S. oilfield activity will likely slow leading to lower 2020 U.S. oil supply growth.

In today’s “stat” we will 1) “mark-to-market” our near-term oil price assumptions, 2) update our U.S. activity and oil supply assumptions, 3) update our global oil supply/demand model, and 4) show why we are still convinced that oil prices are still headed for $100 Brent in 2020 (as we initially suggested a month ago).

It is important to note that we believe the psychological damage created by the extreme oil price sell-off over the past month combined with seasonal oil inventory trends in the U.S. will likely create near-term headwinds for upward oil price moves in the first half of 2019. This is despite the bullish global oil inventory trends that we expect to emerge in early 2019. Accordingly, we are reducing our 2019 average for Brent assumptions from $90 to $72 and WTI down from $77.50 to $62. However, based on our continued conviction in the longer term outlook, we are maintaining our 2020 Brent forecasts of $100/bbl and WTI of $92.50/bbl. We are also keeping our long-term oil price deck at $80/bbl Brent and $75/bbl WTI.

If you would like to read the full RJ Report, send me an email ( dmsteffens@comcast.net )

[dan_s]

I am just now catching up on my "reading". On 11-30-2018 Wells Fargo raised their 2019 WTI oil price from $60 to $65 per barrel, primarily because they seem much higher geopolitical risk combined with very little "cushion" in the event of an unplanned supply outage. They agree with RJ (and me) that the recent selloff in oil is way overdone.