Oil prices will rise to $72 per barrel (bbl) by the end of 2019 as current bearish trend driven by trade tariff disputes and weakening demand are temporary sentiments weighing on prices, analysts at S&P Global Platts, a leading oil market intelligence firm has said.
“We see Brent crude prices heading towards $72/bbl at the year of the year driven by stock draws and IMO 2020 impact on prices,” said Francesco Di Salvo, associate editorial director EMEA Oil at the over 100-year-old firm during a presentation at its 9th Lagos Oil & Energy Forum on August 28.
The organisation also forecasts that prices will fall back to $60/bbl next year which defies estimates from organisations. The World Bank expects crude oil prices to average $66/bbl in 2019 and $65/bbl in 2020 due to the weaker-than-expected global growth outlook and greater-than-anticipated U.S. production. This aligns with OPEC and International Energy Association (IEA) forecasts of a bearish market following the US/China trade war.
S&P Global Platts forecasts are based on continued OPEC supply cuts which have helped to steady oil markets. It is also counting on Saudi Arabia, to continue in the role of a swing producer to keep prices competitive. It is also in the country’s interest to keep prices within the $70s range to make the Saudi Aramco Initial Public Offer possible.
Analysts at S&P Global Platts expect that geo-political risks will tip the market into bullish territory. Tensions between the United States and Iran are expected to linger until the US elections next year so that President Trump could present a tough stance to his base. Other flashpoints such as Venezuela, Nigeria and Libya could also rattle oil markets, the analysts said.
The Strait of Hormuz, a narrow waterway that lies between Iran and Oman where dozens of tankers carrying about 20 percent of the world’s oil supply bound for Asia, pass through its 21-mile-wide passage will play an important role in shaping oil prices, analysts say.
Iran has twice attacked oil tankers passing through the channel leading to nearly $2 per barrel jump of oil prices in June. This could snowball into a bigger conflict between the US and Iran, cutting off a critical artery to the global oil market and pushing up oil prices.
S&P Global Platts analysts say the implementation of the International Maritime Organisation (IMO) sulphur cap of 0.5 percent from the current 3.5percent will spur oil prices.
IMO, which regulates international shipping, passed a regulation in 2008 that the marine sector will reduce sulphur emissions by over 80 percent by switching to lower sulphur fuels to protect human health and the environment. There are about 80,000 vessels that could be affected as tighter specs for marine fuel will affect shipping, refining and oil prices and global trade.
A higher oil price forecast should be cheering news for Nigeria whose budget benchmark is based on $60/pbl. but the threat from shale producers will rain on its parade.
Since 2010, production from the Permian basin has threatened crude grades from Africa especially Nigeria where exports to the US have fallen from nearly 17 percent in 2010 to less than 6 percent today. According to the U.S. Energy Information Administration data, Nigeria did not export a drop of oil to the US for three weeks in July.
Nigerian crude grades contain low sulphur which makes them easy to refine. This used to confer some advantages over US sulphur heavy grades until shale producers began producing grades with even lower sulphur content from the US Permian Basin. The US market accounted for the biggest oil demand last year at about 540,000 bpd according to the US EIA but most of the crude was sourced locally.
Now shale producers are not only seeking to run Nigerian crude grades out of the US, they are going after her traditional markets in Europe and Asia.
“It is more of a push rather, than a pull factor,” says Di Salvo. It is not that Europe has suddenly begun to demand more US oil, but constant pushing by the US is forcing some to begin replacing Nigerian grades.
According to IHS Markit data, an oil market analytics firm, Europe has imported around 46 percent of Nigeria’s oil since the beginning of 2019, India nearly 18 percent, and the rest of Asia about another 10 percent.
ISAAC ANYAOGU
