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Oil Market Snapshot – December 2018 Al-Falih’s Christmas Present Gets Lukewarm Market Reception

Brent holds around $60/bbl after the Vienna Group agrees a fresh production cut deal, in line with our expectations. The new cut is 1.2 million b/d, with 800,000 b/d from OPEC and 400,000 b/d from non-OPEC countries. The net effect is an extra 200,000 b/d of pledged cuts on top of the previous deal. We expect Brent to average between $65-$75/bbl in 2019, currently pegging it at c. $67/bbl (-$11.20/bbl on previous), in part based on the futures curve. We see the market as broadly balanced in both 2018 and 2019, though risk factors abound. On the demand side, they are mostly bearish for oil prices (the US-China relationship), while for supply the uncertainty surrounding many countries’ output gives a mixed picture. A continued policy of active market management from Saudi Arabia and Russia will impact supply throughout 2019, making all forecasts tentative. We see production growth of 2.14 million b/d in 2018, and 1.42 million b/d in 2019 (-900,000 b/d on previous, impacted by the deal) if the production deal ends after six months. We see demand growth of 1.56 million b/d in 2018 (+60,000 b/d on previous), holding firm at 1.49 million b/d in 2019 (+30,000 b/d on previous). Alberta has announced a surprise government mandated production cut of 325,000 b/d to drain inventories and counter a stiff differential on its oil prices. Qatar has left OPEC, saying it is unwilling to give credibility to Saudi Arabia’s oil policies any longer....

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