Crude oil price outlook remains bearish for now; WTI, Brent seen at USD70/bbl and USD80/bbl respectively: OCBC Bank

Crude oil price outlook remains bearish for now, with WTI and Brent crude prices forecast at USD70/bbl and USD80/bbl, respectively, according to the latest research report from OCBC Bank.

Global oil production remains flushed given OPEC’s pledge to pump an extra 1 million barrels a day of crude oil to fill production shortfall created by the economic issues in Venezuela and sanctions against Iran.

The rally in energy prices continued into end 3Q18, given potential supply shocks emanating especially from Iranian sanctions amid OPEC’s reluctance to lift production in response. Moreover, Saudi Arabia’s rhetoric to stay “content” should prices at USD80/bbl or higher could have given investors a price target.

Fundamentals however are painting a different environment: OPEC’s oil production since May 2018 when Iranian sanctions were announced were decisively higher, with higher supplies seen from Saudi Arabia, Russia and Iraq. The upside in oil production have in fact outweighed the lower production seen in Iran and Venezuela.

Demand trend from oil importing economies were also slower in the first 7-8 months of 2018. This suggest that the rosy economic environment seen in 2017 has somewhat dissipated into 2018. Downside risks to economic growth remains to be US-Sino trade tension, Brexit risks into March 2019, and the ongoing flattening yield curve in the USTs, the report added.

Incoming oil inventory data is a mixed-bag: US crude oil inventories tuned below its 5- year average to its lowest since February 2015 even as production climbed into Sept 2018. However, floating oil inventories continue to side-line into 2018.