Credit Suisse Says Oil Price Risks Have Switched to the Upside
October 19, 2021
Energy prices closed mixed in yesterday’s trading after being significantly higher in the early morning trading hours. Negative news out of China that their economic growth slowed to a GDP of just 4.9% in Q3 down from 7.9% in Q2 due to a slowdown in construction activity and factory output due to energy shortages of coal and natural gas. Production at US factories also fell the most in seven months. Some see this as further evidence that the supply constraints are impacting economic growth.
According to the EIA, total oil output from seven major shale formations in the US was expected to increase 76,000 BPD to 8.29 million BPD in the month. It reported that oil production in the Permian Basin is expected to increase 62,000 BPD to 4.8 million BPD in November. US Bakken oil production for November is seen up 5,600 BPD to 1.137 million BPD, while US Eagle Ford oil production is seen increasing by 500 BPD to 1.077 million BPD. Natural gas output is seen up 0.3 billion cubic feet per day to 87.9 BCF, which will help the propane supply.
Three OPEC+ sources stated that OPEC+ compliance with oil cuts fell slightly to 115% in September. This shows that there are still some countries that are struggling to produce their quotas, due mainly to technical issues. Bloomberg in an article says that these OPEC struggles are also part of the reason OPEC+ has not agreed to increase production because they can’t. OPEC+ is also worried that early next year the market will flip into a supply surplus and that also is a reason for their caution.
ABN Amro sees Brent averaging $79 per barrel in the current quarter and $83 in the first quarter. That is up from an August estimate of $65 per barrel this quarter. The WTI forecast also increased to $76 per barrel for this quarter and $79 for in the first quarter.
Credit Suisse said it sees oil price risks have switched to the upside as it sees rising natural gas prices encouraging fuel switching. It said “we expected Brent to average $75 per barrel in the second half of 2021, while crude averaged $2 per barrel below our forecast in the 3rd quarter, now the risk appears clearly to the upside. Shortages and spikes in prices of natural gas, coal, and electricity are putting extra pressure on oil markets, boosting demand from industries and power generators. If we do get a cold winter, then there is real possibility crude prices could remain over $80 for the next 6 months even as the supply situation continues to improve.”