Raymond James Oil Price Forecast - Revised on Oct 14
Posted: Mon Oct 14, 2019 8:40 am
Raymond James updates their oil price forecast at the beginning of each quarter.
In our last oil update, we detailed why we expect global petroleum inventories to draw by a very bullish 1.0 million bpd in 2019 and 300,000 bpd in 2020, with inventories (on a days-of-consumption basis) set to fall to unprecedentedly low levels in 2020. Since then, there have been significant (both bearish and bullish) changes to the key variables impacting our oil model. Our updated model now has global oil inventories falling 900,000 bpd in 2019 and another 700,000 bpd in 2020, followed by a balanced market in 2021. This still drives global "days of consumption" to well below historical levels in the coming quarters. In this week's "Stat", we will walk through these key oil equation changes and adjust our oil price deck to account for recent price movements.
Specifically, we will detail why we now think that
1) U.S. oil supply growth will be meaningfully lower (almost a million bpd) than consensus expectations,
2) global oil demand will be modestly lower than we previously thought (due largely to an ugly 2Q demand performance),
3) IMO 2020 will have less of an impact than we thought a year ago, and
4) 2H19 supplies from Saudi Arabia will likely be down by about 150 million bbls as a result of the damage from the Iranian attack.
Even though the sum of these supply/demand changes actually leaves our supply/demand balance more bullish than it was in July, we are lowering our 2020 oil price estimates to accommodate the recent bearish price action and overall oil market pessimism. Even though we are lowering our oil price estimates, it is important to note that our new 2020 forecasts are 30% to 40% ABOVE the current futures strip, while our long-term price assumptions are nearly 50% ABOVE the strip.
Our new 2020 WTI forecast decreases from $92.50/bbl to $70/bbl, while our 2021 and beyond forecast remains at $75/bbl.
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All of my forecast/valuation models assume $60/bbl WTI for all future periods. In addition to supply/demand tightness, I think there should be a much higher geopolitical risk premium when there is none today. The U.S. vs China Trade War continues to be #1 on the long list of "noise" that's keeping a lid on oil prices. - Dan
In our last oil update, we detailed why we expect global petroleum inventories to draw by a very bullish 1.0 million bpd in 2019 and 300,000 bpd in 2020, with inventories (on a days-of-consumption basis) set to fall to unprecedentedly low levels in 2020. Since then, there have been significant (both bearish and bullish) changes to the key variables impacting our oil model. Our updated model now has global oil inventories falling 900,000 bpd in 2019 and another 700,000 bpd in 2020, followed by a balanced market in 2021. This still drives global "days of consumption" to well below historical levels in the coming quarters. In this week's "Stat", we will walk through these key oil equation changes and adjust our oil price deck to account for recent price movements.
Specifically, we will detail why we now think that
1) U.S. oil supply growth will be meaningfully lower (almost a million bpd) than consensus expectations,
2) global oil demand will be modestly lower than we previously thought (due largely to an ugly 2Q demand performance),
3) IMO 2020 will have less of an impact than we thought a year ago, and
4) 2H19 supplies from Saudi Arabia will likely be down by about 150 million bbls as a result of the damage from the Iranian attack.
Even though the sum of these supply/demand changes actually leaves our supply/demand balance more bullish than it was in July, we are lowering our 2020 oil price estimates to accommodate the recent bearish price action and overall oil market pessimism. Even though we are lowering our oil price estimates, it is important to note that our new 2020 forecasts are 30% to 40% ABOVE the current futures strip, while our long-term price assumptions are nearly 50% ABOVE the strip.
Our new 2020 WTI forecast decreases from $92.50/bbl to $70/bbl, while our 2021 and beyond forecast remains at $75/bbl.
---------------------------------------
All of my forecast/valuation models assume $60/bbl WTI for all future periods. In addition to supply/demand tightness, I think there should be a much higher geopolitical risk premium when there is none today. The U.S. vs China Trade War continues to be #1 on the long list of "noise" that's keeping a lid on oil prices. - Dan