Banks Are Adjusting Their Crude Oil Forecasts Higher
December 19, 2019
New reports that just came out about 7:30 am this morning are saying the US and China are planning for a delay to tariffs that start December 15th. Stock futures turned positive after the news and energy price rallied into positive territory after the news hit the wires as well.
The energy markets were trading lower in yesterday’s session on the news that Chinese exports fell in November. Later in the day the energy markets did get off of their lows of the day as news hit that the US-Mexico-Canada trade deal may be agreed upon very soon by congress. Chinese custom data showed the exports fell for a 4th straight month in November 2020 by 1.1% from November 2019. A Reuters poll expected a rise of 1% in Chinese exports, so the demand fears dominated due to no US China trade deal getting done.
Despite the by report about China from above the Chinese continue import crude oil and export refined fuels products at a high level. In November Chinese imports of crude oil hit a record high of 11.13 million bpd up 15.8% from the same month last year. China’s refined fuel products also reached a record high in exports for November. Private refineries in China, called teapot refiners, are ramping up output to use up their crude oil import quotas for the year in order to be able to apply for more quotas next year. China’s state-backed oil refineries maintain stable throughput levels in November, making this data less bullish.
President Donald Trump said the US is doing well with China in putting together a trade deal.
China’s Assistant Commerce Minister, Ren Hongbin, said China hopes that it can reach a trade agreement with the US that satisfies both side as soon as possible. The next round of US tariffs against the Chinese goods are scheduled to take effect on December 15th.
Libya National Oil Company declared force majeure on loadings of Mellitah crude oil after the El Feel oilfield was shut down last week. The 73,000 bpd El Feel oil field contributes to Libya Mellitah crude oil blend along with condensate from the Wafa field. The field was taken offline on December 5th after a value on the pipeline to Mellitah export terminal was blocked.
Several of the big investment company and banks have adjusted their crude oil price forecast higher in their latest round of outlooks. Goldman Sachs raised its oil price forecast for 2020, citing tighter-than -expected inventories after OPEC and its allies agreed to deepen oil output cuts through the first quarter of next year. The bank revised its Brent spot price forecast to $63 per barrel for 2020, up from a previous estimate of $60 per barrel, while it also increased its WTI sport price outlook to $58.50 per barrel from a previous estimate of $55.50 per barrel. Goldman Sachs lowered it demand growth forecast by 50,000 bpd, citing prospects for a modest recovery in global growth, driven by higher consumer spending but a still-challenged manufacturing sector. The bank projects its demand growth forecast at 900,000 bpd and 1.2 million bpd for 2019 and 2020 respectively.
Bank for America Merrill Lynch said strong compliance by OPEC and its allies with a deal to cut oil production and positive economic developments, including a US-China trade deal, could push Brent crude to $70 per barrel before the second quarter of 2020.
Morgan Stanley said OPEC and its allies’ plan to deepen cuts through the first quarter of 2020 will support that market only in the short term, while Brent prices are likely to revert to $60 per barrel by mid-2020. The bank cut is 2020 OPEC production forecast by 400,000 bpd to 29.2 million bpd after oil producers led by Saudi Arabia and Russia agreed to cut output in the first quarter of 2020 but stopped short of pledging action beyond March. Despite the cuts, the bank expects a modest oversupply into next year, even as the demand is expected to re-accelerate with some support from the upcoming IMO 2020 rules. Morgan Stanley sees Brent oil prices at $62.50 per barrel in the first quarter but lowered its forecast to $60 per barrel for the rest of 2020. WTI prices are expected to hold at $57.50 per barrel in the first quarter and at $55 per barrel for the rest of the year.
Here are the early estimates from the Reuters survey on the DOE inventory report out on Wednesday. Crude down 3.1 million barrels, gasoline up 2.7 million barrels and distillates up 1.8 million barrels.