OPEC supply squeeze seen supporting higher oil prices

Print 🖨

(Reuters) – Oil prices are likely to stay buoyant this year as the U.S. decision to end waivers on Iranian oil and OPEC output curbs are expected to keep supply tight, a Reuters survey showed on Tuesday.

A monthly survey of 31 economists and analysts forecast Brent crude would average $68.57 a barrel in 2019, more than 2 percent higher than the $67.12 forecast in the previous poll in March.

U.S. light crude is seen averaging $60.23 per barrel this year, compared with $58.92 forecast in March.

The latest figures are the highest projections this year as analysts raised oil forecasts for a second straight month.

“The elimination of U.S. waivers for Iran will take another 0.5-1 million barrels per day from the oil market,” said Frank Schallenberger, head of commodity research at LBBW.

“Together with political tensions in Libya and chaos in Venezuela this will make the tight situation on the supply side of the oil market even tighter. There is no doubt that high oil prices are here to stay!”

Oil has already rallied about 40 percent since the beginning of the year mainly helped by a deal between the Organization of the Petroleum Exporting Countries and other producers including Russia to curb output.

To compensate for the reduced supply from Iran, the United States is pressuring OPEC to raise output.

ROO.AI Oil and Gas Field Service Software

“If OPEC and its non-OPEC allies led by Russia do not make an allowance for on-going unplanned outages in Venezuela and Iran, they could run the risk of over-tightening the oil market should they decide to roll over production cuts when they meet again in Vienna in June,” said Harry Tchilinguirian, strategist at BNP Paribas.

A majority of analysts who participated in the poll expect OPEC cuts to be extended until the end of the year, but at the same time they expect the group to recoup deteriorating output from Venezuela and Iran.

“Our expectation is for OPEC+ output to increase in the second half of 2019 as members chase higher oil prices but ultimately will contribute to an oversupplied market,” said Edward Bell of Emirates NBD bank.

Brent is expected to average around $70 per barrel in the second and third quarters of this year, but fall slightly to near $69 by year-end due to rising production from the United States and lingering concerns over economic growth.

“We expect U.S. oil output to increase in 2019 as logistical bottlenecks continue to clear and recent high prices encourage drilling,” said Capital Economics analyst Caroline Bain.

U.S. crude oil output from seven major shale formations is expected to rise to a record 8.46 million bpd in May, according to the U.S. Energy Information Administration.

Growth in global oil demand is expected to ease to 1-1.4 million barrels per day (bpd) this year from 1.2–1.5 million bpd forecast in the March poll.

Additional reporting by Swati Verma in Bengaluru; editing by Jason Neely