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Oil Market Snapshot – January 2019 Global Economic Worries Still Weigh As Brent Finds $60/bbl Floor

After falling $10/bbl over the Christmas period, Brent has returned to c. $60/bbl in January, in line with our expectation that the Vienna Group’s new deal has put a floor under prices. Our current forecast, inclusive of futures prices to capture market sentiment, is for Brent to average $62.46/bbl in 2019. Two different analyses of the fundamentals point to a higher price of c. $73/bbl, however, indicating that market sentiment is to the downside as concerns over the global economy weigh. We see global demand growth of 1.53 million b/d (+40,000 b/d on previous) in 2019 on strong figures from the US, with supply growth of 940,000 b/d (-480,000 b/d on previous). Uncertainty over the global economy a major factor adding downward pressure on oil prices. As China continues to be a leading source of oil demand growth, its economic indicators are worsening is cause for concern – a resolution of the trade war with the US would boost prices. Offshore, activities are on the way back to pre-2014 price collapse levels, particularly from state owned companies including Equinor and CNOOC. The big unknown on the supply side is US production growth. Having outpaced expectations in 2018 at 2.1 million b/d (liquids), 2019’s growth will in our view be substantially less. Our analysis shows that a repeat of 2018’s activity in 2019 would bring US LTO production growth of 928,000 b/d (71% of 2018’s), which we consider an upper bound on the likely range. With our expectation being that the market is finely balanced in 2019, we expect continued intervention in the market by the Vienna Group, as deemed necessary....

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