Oil Price - Jan 9
Posted: Thu Jan 09, 2020 9:18 am
Comments below are from Raymond James on January 8:
At the end of 2019, phase one of the U.S.-China trade deal and reduced Brexit uncertainly alleviated oil demand-related concerns. Building on those gains, the past week’s escalation of the U.S.-Iran confrontation pushed oil prices even higher, as the geopolitical risk premium widened. The Iran situation remains fluid, but based on what we know today, the scenario of an actual supply disruption looks unlikely.
Regardless, the supply side of the equation is already broadly bullish: 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 include especially strong Saudi discipline; Venezuela’s domestic crisis shows no signs of ending; and IMO 2020 has officially taken effect as of January 1. The 12-month futures strip ($60.36/Bbl for WTI and $64.82/Bbl for Brent) shows considerable backwardation for both Brent and WTI; for comparison, our 2020 forecast is $65.00 WTI/$70.00 Brent.
Several key question marks remain:
1) on the bullish side, the possibility of supply disruptions above and beyond the current ones, including but not limited to Iran,
2) on the bearish side, the uncertain global macro landscape and resulting read-through for oil demand.
All of my forecast/valuation models are based on WTI oil averaging $60/bbl for all future periods. WTI averaged approximately $56/bbl in Q4 2019.
At the end of 2019, phase one of the U.S.-China trade deal and reduced Brexit uncertainly alleviated oil demand-related concerns. Building on those gains, the past week’s escalation of the U.S.-Iran confrontation pushed oil prices even higher, as the geopolitical risk premium widened. The Iran situation remains fluid, but based on what we know today, the scenario of an actual supply disruption looks unlikely.
Regardless, the supply side of the equation is already broadly bullish: 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 include especially strong Saudi discipline; Venezuela’s domestic crisis shows no signs of ending; and IMO 2020 has officially taken effect as of January 1. The 12-month futures strip ($60.36/Bbl for WTI and $64.82/Bbl for Brent) shows considerable backwardation for both Brent and WTI; for comparison, our 2020 forecast is $65.00 WTI/$70.00 Brent.
Several key question marks remain:
1) on the bullish side, the possibility of supply disruptions above and beyond the current ones, including but not limited to Iran,
2) on the bearish side, the uncertain global macro landscape and resulting read-through for oil demand.
All of my forecast/valuation models are based on WTI oil averaging $60/bbl for all future periods. WTI averaged approximately $56/bbl in Q4 2019.