Commodities View: Sentiment has turned negative for oil prices – Oil prices have come under serious pressure in recent weeks. Since early 2016, oil prices continued to rise on the back of economic growth, positive sentiment in other asset classes, as well as support from OPEC policy. More recently, US President Trump has said that OPEC is keeping oil prices too high by not producing enough oil. OPEC and its allies reacted by increasing oil production, which has pushed oil prices lower. On top of that, the negative sentiment in other asset classes also spilled over to oil markets. A further factor has been a rise in US inventories, triggering investor worries that another period of oversupply is possible. Finally, the US provided 180-day waivers to eight Iran oil consumers and thereby softened the effects of the Iran sanctions. Although the long-term technical uptrend is still intact, short-term sentiment has clearly deteriorated after crucial technical support levels were taken out. As a result, Brent has dropped to USD 65/bbl and WTI touched USD 55/bbl.
With the US mid-term elections behind us and the bi-annual OPEC meeting ahead, OPEC has started to signal that lower demand for OPEC oil would justify a production cut. This forward guidance was counterbalanced by new comments from President Trump pointing to the need for more oil. On 6 December the bi-annual OPEC meeting will be held. The outcome of this meeting will be crucial for the 2019 oil price direction. Will OPEC focus on its own policy of stabilizing crude supply (and thus cut production), or will it be sensitive to Trump’s request for lower oil prices? For the moment we believe that oil prices have dropped too far and that a recovery is likely. Although our 2018 year-end forecast of USD 85/bbl may seem optimistic, we maintain our forecast of higher oil prices in 2019 for the time being. Global oil demand growth may be affected somewhat by a slowdown in global economic growth. However, according to the International Energy Agency global demand will continue to grow with 1.4 million barrels per day (mb/d) in 2019 (compared to 1.3 mb/d in 2018) which is in line with our forecast. (Hans van Cleef)