JP Morgan Raises Brent Crude Forecast Price to $40 per Barrel
June 9th, 2020
It appears that the OPEC+ news of extending production cuts was a buy the rumor sell the news event. An extension to production cuts is bullish news but I think the market was disappointed it was only one month and the fact that those making additional voluntary cuts (Saudi Arabia, Kuwait and United Arab Emirate) will end then this month which is also bearish news. The debate is now on of how all this shakes out. Will the market be oversupplied or undersupplied and how soon will we know? Demand has been coming back as the lock downs end but that will continue to be watched.
Early estimates are calling for crude oil stocks to be down 1.5 million barrels in this week’s inventory update. We get the API numbers later today and the DOE numbers tomorrow.
Travel Falls, Saudi Arabia Eyes Oil Prices, U.S. in Recession
The US Transportation Department said travel on US roads in April fell by 39.8% amid the coronavirus stay-at-home orders. U.S. motorist drove 112 billion fewer miles compared with April 2019, for a total of 169.6 billion vehicle miles. In the first four months of 2020, U.S. motorists traveling 875.9 billion miles, the lowest amount since 2001.
Strong Saudi official selling prices are an indication of returning global oil demand, says Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman. The increases erase almost all of the discounts the country made during its brief price war with Russia. However, representative for refineries from Europe and Asia expressed concern and said the pricing would cut margins.
The National Bureau of Economic Research’s has said the US economy officially went into recession in February. It marked the end of the longest economic expansion according to data going back to the 1850s.
Oil Stocks Fall, Prices Forecast to Rise
Genscape reports crude oil stocks at Cushing, Okla. for the week ended June 5 fell by 1,906,771 million barrels.
Oil markets will be under-supplied in the second half of the year, according to Morgan Stanley analysts. Inventories are forecast to fall in the fourth quarter and next year’s first quarter. It does not expect oil demand to fully return to pre-COVID-19 levels until the end of 2021. Morgan Stanley expects oil demand to return to record highs over the next 18 months.
JP Morgan raised its Brent price forecast to $40 per barrel, up from a previous forecast of $35 per barrel. The bank forecast 2021 prices of $47 per barrel, up from a previous forecast of $37 per barrel.
HSBC Global Research raised its 2020 oil price forecast and projected the market would move into deficit in July helped by output cuts.
There has been a lot of comments about crack spreads and whether refineries are making money. But production is coming back up and many worry that the outlook for demand is looking stronger and is happening faster than the restart of refineries is happening which could lead to short term issues.