Oil: Supply disruptions boosted crude prices - Westpac

Justin Smirk, Research Analyst at Westpac, suggests that supply disruptions have boosted crude prices, but surging US output, and a recovery in OPEC & non-OPEC output are likely to suppress prices in 2019.

Key Quotes

“Robust demand but, more importantly, the disruptions of oil production from two OPEC producers (Venezuela and Angola) as well as the US pulling out of the Iran nuclear agreement are the key factors for this outperformance.”

“Through 2017/2018 global crude production fell below demand driving a reduction in global inventories.”

“However, were it not for production difficulties in Venezuela and Angola, total OPEC production would have overshot the agreed targeted output by around 25%. In addition, US production has surged while non-OPEC production outside of the US is also lifting.”

“Both the IEA and EIA are forecasting the market balance to shift from a deficit to a surplus in late 2018 with inventories starting to build as we move through 2019.”

“The tightening of sanctions on Iran remains a near term risk. Iran represents about 4% of total crude supply so the total removal Iranian exports would lift crude prices by around 8%.”

“Westpac is forecasting Brent to hold around current levels to end 2018 before easing back to US$62/bbl end 2019. As crude prices firmed, forecasts for demand have been revised down. The IEA estimates that if prices average 9% above US$70/bbl in 2018 H2, there is the potential for a further 270,000bpd reduction in demand.”