Energy Stat of the Week by Justin Jenkins

Energy Stat: Updating Oil Price Forecast

December 10, 2018

Over the past few weeks we have attempted to explain (link) why the crude markets have experienced such a sharp and violent correction over the past month. Specifically, three main issues that triggered the initial oil selloff included 1) Trump “pulling the rug out from under the Saudi’s” by giving Iranian sanction waivers, 2) increasing concerns over global oil demand, and 3) a surge in U.S. oil production trends. While these three bearish concerns are still at play, the consequences of lower oil prices is now setting the stage for a much tighter oil market next year and the likelihood of sharply higher oil prices in the back half of 2019. Put simply, our global oil supply/demand equation for the next few years is now much more bullish than a month ago because 1) 2019 OPEC supply will be lower with the recent OPEC cuts, and 2) U.S. oilfield activity will likely slow leading to lower 2020 U.S. oil supply growth. The consequence of these two significant oil supply reductions is that global inventory reductions are now likely to come much sooner and be more severe than our prior model as shown below