RJ: Oil Price Forecast Update - Nov 26
Posted: Mon Nov 26, 2018 11:34 am
Raymond James published a detailed oil supply/demand forecast this morning that is at odds with a lot of stuff coming from the rest of the Wall Street Gang these days. IMO RJ's Energy Team does an outstanding job in forecasting the long-term outlook for the oil market. However, as we all know too well, the Wall Street Gang's "paradigm" (belief not reality) is what controls short-term oil, gas and NGL prices. Actually, the recent slide in the crude oil price was caused by a "technical breakdown" in the charts that took a lot of hedge funds by surprise, causing massive "panic" selling. The reverse happened for natural gas as the "panic" caused massive short-covering. If you'd like to read the full RJ report, send me an email. They get pissed if I send it out to all EPG members at once.
Here is the conclusion of this morning's update:
Global oil demand growth and oil price outlook remains robust despite market concerns
As oil prices have collapsed over the past month, investors have struggled to find fundamental justifications for the extreme meltdown.
Our view is that the oil supply/demand fundamentals over the next few years remain VERY healthy and this trading driven
sell-off will only result in a more undersupplied oil market sooner than we thought before. While Donald Trump, Saudi, and oil
supply narratives have recently captured most of the oil markets attention, many energy investors are also increasingly concerned
about the prospect of deteriorating oil demand growth. These concerns have been fed by a stronger U.S. dollar, potential
slowdowns in emerging economies, trade wars, and weak emerging market stock exchanges. While oil demand wildcards still exist,
the current reality suggests that the world is very much in the midst of very robust global oil demand growth despite rising oil
prices (at least until recently) and a stronger U.S. dollar. We believe the emerging Asian markets should continue to be the primary
driver of global oil demand growth, while surging NGL and distillate demand growth from the U.S. is also providing a surprisingly
strong addition to global oil demand. In fact, this oil price collapse will likely drive even higher near-term oil demand growth than
we have been anticipating, setting the oil market up for sharp oil inventory reductions by the second quarter of 2019. Longer term,
we still remain convinced the market will need to drive Brent oil prices to $100/Bbl to balance the oil equation through slower oil
demand growth. < RJ's forecast is that Brent will move to $100/Bbl in Q4 2019.
Here is the conclusion of this morning's update:
Global oil demand growth and oil price outlook remains robust despite market concerns
As oil prices have collapsed over the past month, investors have struggled to find fundamental justifications for the extreme meltdown.
Our view is that the oil supply/demand fundamentals over the next few years remain VERY healthy and this trading driven
sell-off will only result in a more undersupplied oil market sooner than we thought before. While Donald Trump, Saudi, and oil
supply narratives have recently captured most of the oil markets attention, many energy investors are also increasingly concerned
about the prospect of deteriorating oil demand growth. These concerns have been fed by a stronger U.S. dollar, potential
slowdowns in emerging economies, trade wars, and weak emerging market stock exchanges. While oil demand wildcards still exist,
the current reality suggests that the world is very much in the midst of very robust global oil demand growth despite rising oil
prices (at least until recently) and a stronger U.S. dollar. We believe the emerging Asian markets should continue to be the primary
driver of global oil demand growth, while surging NGL and distillate demand growth from the U.S. is also providing a surprisingly
strong addition to global oil demand. In fact, this oil price collapse will likely drive even higher near-term oil demand growth than
we have been anticipating, setting the oil market up for sharp oil inventory reductions by the second quarter of 2019. Longer term,
we still remain convinced the market will need to drive Brent oil prices to $100/Bbl to balance the oil equation through slower oil
demand growth. < RJ's forecast is that Brent will move to $100/Bbl in Q4 2019.