Brent Crude 2019 Average Seen in $60s/bbl, Buoyed by Strong OPEC+ Compliance – GIQ Survey

Brent crude prices will average in the $60s/barrel range this year, according to the majority (53%) of respondents to a GIQ industry survey conducted at the Middle East Energy Summit February 28th at London’s IP Week.

Dubai - March 4, 2019 (Gulf Intelligence): Brent crude prices will average in the $60s/barrel range this year, according to the majority (53%) of respondents to a GIQ industry survey conducted at the Middle East Energy Summit February 28th at London’s IP Week. A third of the audience were more optimistic, forecasting that prices would average in the $70s. In 2018, Brent averaged $71.34 and would have recorded a higher level had prices not dropped dramatically by 35% during the fourth quarter on the back of unexpected waivers by the US on Iran sanctions and lower than forecast GDP numbers in China.

Prices have held in the $60s in the first two months of 2019, largely supported by strong compliance to the new agreement made by the OPEC + group in December, to cut output by 1.2 million b/d through to June 2019.

59% of the GIQ survey audience see compliance to the deal holding at 90-100%, while almost a quarter (22%) of respondents vouched for 120% - similar to average levels achieved by the group of 25 producers under the 2017-2018 production accords.

Saudi Arabia, OPEC’s largest producer, reduced output by 100,000 b/d in February to 10.1 million, putting its compliance rate as high as 166%. Prices have also received support from lower production by two of the OPEC members who are currently exempt from the agreement – Venezuela and Iran - constrained by geopolitical and economic factors.

Working against the OPEC + group’s efforts is the reality of weaker GDP forecasts for Asia’s largest consumer, China. The country announced that its official economic growth rate was 6.6% in 2018 - the slowest recorded since 1990. China’s GDP rate has halved in the past decade and 38% of the GIQ audience see the country’s economy continuing to head in this direction, namely towards average growth rates more akin to OECD economies, of around 3%.

China’s trade relations with the US will also be a key influencer on the direction that oil prices take this year, according to 30% of survey respondents. The unpredictable tit-for-tat rhetoric that has dominated headlines between the world’s two largest economies for the past year took a slightly positive turn at the start of 2019, but economic observers remain none the wiser as to how long the hiatus will remain or where each stands on the easing of tariffs. In January, President Trump delayed plans to increase tariffs on $200 billion of Chinese goods from 10% to 25%.  So far, the U.S. has put tariffs on $250 billion of Chinese goods and Beijing has placed duties on $110 billion of US products.

The growth of US shale oil production continues to place a dominant weight on oil prices, according to 34% of those polled in the GIQ survey. The shale ‘revolution’ has enabled US oil output to jump 140% since 2008 and some analysts are forecasting that the country could be a net exporter of crude and refined products by as soon as 2020. Moreover, the EIA estimated that US oil output hit 12 million b/d in mid-February; this materialized earlier than expected,  with the previous consensus being that this level would only be reached during the second half of the year.