"After marking-to-market near-term oil prices, including the recent price volatility amid macro-related concerns about global demand, our 2019 WTI forecast decreases from $65.50/Bbl to $62.50/Bbl, and similarly Brent from $74 to $71. More importantly, we continue to believe that 2020 will be a cyclical-peak year, due to the impact of IMO 2020, and thus we maintain our forecast of $92.50 WTI and $100 Brent - which is at the high end of Street expectations and well above the current futures strip." - Marshall Atkins, Raymond James Energy Industry Brief 7-22-2019
For details behind their forecast, attend our Houston Luncheon on July 31st at The Hess Club.
Raymond James Oil Price Forecast - Revised on July 22
Raymond James Oil Price Forecast - Revised on July 22
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Raymond James Oil Price Forecast - Revised on July 22
"To be crystal-clear, oil market fundamentals have not worsened versus three months ago, but it is fair to say that prices have not rallied by this point quite as much as we had expected. Insofar as we can identify the main reason for the choppy sentiment, it would be the macroeconomic fears vis-a-vis global oil demand, especially emanating from the U.S.- China trade war." - Marshall Atkins on July 22, 2019.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Raymond James Oil Price Forecast - Revised on July 22
Each week in my podcasts I urge you to focus on days of supply when comparing inventories to historical levels and the oil price. Here is why; cut word for word from Raymond James detailed oil price forecast dated 7-22-2019.
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"As we track global inventories to judge how tight the oil market is, rising global consumption means that historical inventory levels do not tell the full story. As a practical matter, the world needs higher inventories to manage the increasing supply chain logistics. When we normalize OECD inventories by looking at them on a days-of-consumption (DOC) basis, we find that 30 days of consumption has been the long-term average. Furthermore, the light blue line in the chart below shows that there has historically been a close inverse correlation between inventories on a DOC basis and oil prices. The previous low in DOC was around 27.5 days of consumption (or ~8% below normal) in 2013 and coincided with $100+ oil prices. Our latest global oil model suggests that inventories will fall to much more bullish levels than what was seen in 2013."
"Our model points to a genuine (oil inventory) shortfall brewing in 2020, with inventories falling to an unprecedentedly low 25 days of consumption, down from 28 days as of 2Q19. This is so far below the historical low reached in 2013 that it "falls off" our chart! To be clear, this is all a hypothetical scenario. In reality, the system cannot bear inventories falling to such an unprecedented level, so something will have to give. Put another way, higher oil prices will be the essential flex variable that ends up resolving the imbalance."
- Marshall Atkins, Raymond James 7-22-2019
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"As we track global inventories to judge how tight the oil market is, rising global consumption means that historical inventory levels do not tell the full story. As a practical matter, the world needs higher inventories to manage the increasing supply chain logistics. When we normalize OECD inventories by looking at them on a days-of-consumption (DOC) basis, we find that 30 days of consumption has been the long-term average. Furthermore, the light blue line in the chart below shows that there has historically been a close inverse correlation between inventories on a DOC basis and oil prices. The previous low in DOC was around 27.5 days of consumption (or ~8% below normal) in 2013 and coincided with $100+ oil prices. Our latest global oil model suggests that inventories will fall to much more bullish levels than what was seen in 2013."
"Our model points to a genuine (oil inventory) shortfall brewing in 2020, with inventories falling to an unprecedentedly low 25 days of consumption, down from 28 days as of 2Q19. This is so far below the historical low reached in 2013 that it "falls off" our chart! To be clear, this is all a hypothetical scenario. In reality, the system cannot bear inventories falling to such an unprecedented level, so something will have to give. Put another way, higher oil prices will be the essential flex variable that ends up resolving the imbalance."
- Marshall Atkins, Raymond James 7-22-2019
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group