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Oil Market Snapshot – May 2019 Risks Finely Balanced As Physical and Paper Traders Battle It Out In Brent

Brent has retreated in May, falling as low as $68.05/bbl on 23rd May as building US inventories weighed, before recovering to c. $70/bbl by the end of the month. Threats to demand from disrupted trade talks between the US and China have been balanced against a tightening supply situation. The Vienna Group continues to monitor these factors, prepared to supply oil when deemed necessary. We have increased our Brent 2019 forecast to $72.28/bbl(+$3.35/bbl on previous), seeing tighter market conditions in the coming quarters, supported by comparative inventories and US refining outages. As we forecasted last issue, the price dip should be short term, as traders have taken profits when possible cutting their net long position. Our global demand growth forecast for 2019 is unchanged at 1.39 million b/d. Our global supply growth forecast for 2019 is 1 million b/d (-50,000 b/d), led by the US (+1.07 million b/d) but offset by OPEC’s decline (-800,000 b/d). This implies a stock build of 300,000 b/d for the year, vs. a deficit of 250,000 b/d according to the EIA. Our US onshore production growth forecast of 1.07 million b/d is currently on track, though US inventories are building as refineries prepare for IMO2020, forcing maintenance to drag on this year. OPEC compliance with the Vienna Group deal held firm at 150% in April, but there are questions over the veracity of Iran’s production figures. We continue to expect the Group to roll over its production deal, but also for overcompliant nations within OPEC to start adding barrels back to the market in the coming months....

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