Raymond James Oil Price Forecast - Oct 24
Posted: Thu Oct 24, 2019 8:46 am
This week's petroleum inventories update was bullish relative to consensus. "Big Three" petroleum inventories (crude, gasoline, distillates – including SPR) fell by 8.5 MMBbls, versus consensus estimates calling for a draw of 2.2 MMBbls. Turning to crude, total inventories dropped 2.7 MMBbls, versus consensus calling for a build of 2.8 MMBbls and a normal seasonal build of 4.4 MMBbls – note the total number includes a 1.0 MMBBl draw in the SPR. Refinery utilization rose to 85.2% from 83.1% last week. Total petroleum product demand increased 1.2% after last week’s 2.3% decrease. On a four-week moving average basis, there is a 3.4% y/y increase in total demand.
Amid the U.S.-China trade war – where the latest headlines are mixed – alongside Brexit uncertainty, oil prices are being weighed down by the intensely negative macro sentiment, with day-to-day choppiness dominated by demand-related fears. Last month’s stunning oil supply disruption in Saudi highlighted the vulnerability of supply to geopolitical risk, and yet current oil prices are lower than they had been before the attack. Even setting aside the Saudi situation, the fundamentally bullish supply side of the equation is largely being overlooked: the larger U.S. producers are exhibiting restraint in capital allocation, and U.S. well productivity improvements are slowing down; OPEC plus Russia’s production cuts – in place through March 2020 (and with chatter about a further extension) – include especially strong Saudi discipline; U.S. sanctions against Iran continue to be impactful; and IMO 2020 is looming less than three months from now. The 12-month futures strip ($53.47/Bbl for WTI and $57.99/Bbl for Brent) shows modest backwardation for both Brent and WTI; for comparison, our recently reduced 2020 forecast is $70.00 WTI/$75.00 Brent.
There remain several key question marks, such as: 1) on the bullish side, the possibility of supply disruptions above and beyond the current ones, such as a potential scenario of military escalation vis-à-vis Iran, and 2) on the bearish side, visible indications of global macro slowdown and resulting read-through for oil demand.
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The opening speaker at our November 13th luncheon will be a Senior Analyst from Raymond James. He will be going over the details behind the firm's oil price forecast. We are going to be in the Hess Club's San Jacinto room, so seating is limited. PLEASE REGISTER EARLY if you plan to attend.
Amid the U.S.-China trade war – where the latest headlines are mixed – alongside Brexit uncertainty, oil prices are being weighed down by the intensely negative macro sentiment, with day-to-day choppiness dominated by demand-related fears. Last month’s stunning oil supply disruption in Saudi highlighted the vulnerability of supply to geopolitical risk, and yet current oil prices are lower than they had been before the attack. Even setting aside the Saudi situation, the fundamentally bullish supply side of the equation is largely being overlooked: the larger U.S. producers are exhibiting restraint in capital allocation, and U.S. well productivity improvements are slowing down; OPEC plus Russia’s production cuts – in place through March 2020 (and with chatter about a further extension) – include especially strong Saudi discipline; U.S. sanctions against Iran continue to be impactful; and IMO 2020 is looming less than three months from now. The 12-month futures strip ($53.47/Bbl for WTI and $57.99/Bbl for Brent) shows modest backwardation for both Brent and WTI; for comparison, our recently reduced 2020 forecast is $70.00 WTI/$75.00 Brent.
There remain several key question marks, such as: 1) on the bullish side, the possibility of supply disruptions above and beyond the current ones, such as a potential scenario of military escalation vis-à-vis Iran, and 2) on the bearish side, visible indications of global macro slowdown and resulting read-through for oil demand.
------------------------------------------
The opening speaker at our November 13th luncheon will be a Senior Analyst from Raymond James. He will be going over the details behind the firm's oil price forecast. We are going to be in the Hess Club's San Jacinto room, so seating is limited. PLEASE REGISTER EARLY if you plan to attend.