Analysts see few surprises in 2020 as OPEC+ cuts trim surplus

Mike Jeffers December 24, 2019

HOUSTON (Bloomberg) - Oil prices are likely to remain in check during 2020 as OPEC+ production cuts are offset by higher output from other countries and a mixed outlook for demand, according to analysts.

Analysts see prices climbing higher in the middle of the year as stronger emerging-market demand and the OPEC+ cuts trim global inventories. Saudi Arabia surprised the market in early December with a deeper supply cut, which, along with signs of a thaw in the U.S.-China trade conflict that may boost demand, lead some prominent analysts to revise their forecasts higher.

Goldman Sachs Group Inc. increased its estimate for Brent crude to $63 a barrel from $60, according to a note from analysts including Damien Courvalin and Jeff Currie. “This points to a tighter inventory path than we previously expected, especially through first-half of 2020.”

West Texas Intermediate will average $58.50 a barrel in 2020, according to the median of analyst estimates compiled by Bloomberg since the OPEC+ meeting in early December. That compares to the current level of around $60 and the average so far in 2019 of $56.95. Brent is forecast to average $64.25 a barrel.

The forward curve is in backwardation, with spot prices for WTI about $4 a barrel and Brent about $5.25 a barrel higher than December 2020 contracts. That premium for near-term delivery comes as producers sell forward contracts to hedge their output for the next couple of years and as inventories are seen as likely to decline.

Additional analyst comments:

JPMorgan Securities LLC analysts including Abhishek Deshpande see Brent averaging $64.50 a barrel. Stronger emerging market growth prompted the bank to tighten its oil balance in 2020 by 300,000 barrels a day compared with a 100,000 barrel-a-day surplus previously, according to a Dec. 17 note. The bank also cited Petrobras’s recent reduction of its production guidance for next year.
Michael Tran and Helima Croft at RBC Capital Markets see Brent at $64 a barrel, noting inventories are tighter than anticipated, signaling that supply from Johan Sverdrup in Norway and Guyana “are and will be absorbed with relative ease.”