Big Banks Turn Bearish On Oil Next Year

By Julianne Geiger

Oil Prices 2020

As the year draws to a close, the Brent and WTI oil benchmarks are trading at $66.55 and $61.54, respectively.

From $60.65 to $64.50, investment bank and analyst projections for Brent crude prices next year are starting to come in. Most forecasts had the luxury of OPEC’s deeper production cuts under the belt, but by and large, analysts are predicting only lackluster, short-term price gains from the cartel’s actions.

Goldman Sachs – $63/$60. Goldman has updated its 2020 oil price forecast to account for the new OPEC production cuts sealed a couple weeks ago. Its latest projection now sees the Brent benchmark averaging $63 per barrel next year, up from their previous $60 per barrel projection. For the US WTI benchmark, the investment bank sees it averaging $58.50 per barrel. Part of its rationale for the increase was its perceived shift in OPEC strategy—shifting away from trying to correct long-term supply and demand imbalances and toward short-term imbalances. As a result, the Goldman sees the gap between supply and demand next year tightening by 300,000 more barrels per day compared to what they had previously forecast.

JP Morgan – $64.50/$60. While JP Morgan’s Brent forecast for 2020 is higher than Goldman’s, their WTI forecast is the same. JP Morgan is predicting an average barrel price of $64.50 for the Brent benchmark—up from earlier projections of $59.50.  In contrast to Goldman, JP Morgan is estimating that the oil markets will swing into deficit next year, by 200,000 bpd thanks to OPEC’s bigger production cuts. Their previous forecast, issued in September, saw 2020 in an oversupply situation to the tune of 600,000 bpd.

EIA – $61/$55.50. According to the Energy Information Administration (EIA), the Brent benchmark will average $61 per barrel next year. Meanwhile, the EIA is expecting WTI to average $55.50. This is lower than 2019 average prices, which for Brent were $64 per barrel. The reason for the lowered forecast is rising global oil inventories, particularly in the first half of 2020. Even though the EIA is seeing increasing oil inventories globally, it is forecasting a 3 percent rise in refinery runs next year as IMO 2020 regulations kick in.

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S&P Global Platts – Platts sees Brent topping $65 per barrel in early 2020, after which will fall back to the low $60s by year end. The reason for the early 2020 increase is the new IMO regulations, which will favor sweeter crude varieties such as Brent and WTI. Platts is forecasting that WTI will exceed $60 per barrel early next year, before falling back to the high $50s. Platts mentioned in its 2020 forecast Greta Thunberg and the Climate Extinction rebellion, and stated that “efforts by governments to increase energy prices to support the climate agenda will continue to be met by equal opposition as seen with the gilets jaunes and protests in Chile, Ecuador and Iran,” adding that 2020 will bring us to an “intriguing crossroad for the energy transition.” Still, Platts believes that weather will have a greater impact on prices than US-China trade talks and geopolitical risks.

WSJ Poll – $60.65/$55.68. A survey of investment banks conducted by the Wall Street Journal predicted that the Brent benchmark would average $61.23 per barrel in Q1 next year, but for the full year, the banks are anticipating an average of $60.65 per barrel. WTI is expected to average $55.68 per barrel according to the banks polled. Behind the banks’ forecast for slippage mid-year are the thought that the OPEC cuts would not be enough to counteract the oil production injection from Norway, Brazil, Guyana, and the United States.

Morgan Stanley – Presenting a grimmer view of next year’s oil prices, Morgan Stanley sees Brent crude reaching $62.50 in the first quarter of 2020, before falling back to $60 per barrel for the rest of the year. The reason for the more bearish outlook on oil prices is partially due to the single-quarter nature of the deeper OPEC production cuts which will only have a short-term effect, and partially due to the fact that OPEC needed to cut deeper at all in order to lift prices, highlighting the “softness in underlying fundamentals”.  For WTI, Morgan Stanley expects prices to hold at $57.50 per barrel in Q1, and $55 for the rest of 2020.

Reuters Poll – $62.50. A Reuters poll of analysts and economists—taken before the OPEC meeting, in late November—pegged Brent at an average of $62.50 for next year. Reuters noted that this was the lowest prediction for 2020 in about two years. Most respondents did not anticipate deeper OPEC cuts, while agreeing that there was simply too much oil on the market.  There has not been an updated Reuters poll since the OPEC meet, but we would expect those estimates to climb somewhat given OPEC’s surprise cut announcement.

The forecasts for $60.65 to $64.50 for the Brent benchmark compare to today’s Brent prices of $66.69—with all major forecasts calling for a bearish trend for 2020.

By Julianne Geiger for Oilprice.com

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