Clients of the Short Term Outlook service recently received the inaugural Monthly Crude Price Forecast Update. In this report, we review our price forecast in relation to current prices and discuss trends we see influencing prices over the next month. Below is an excerpt.
Current Price Outlook versus Actual
Crude prices have been trending below our most recent forecast (Global Crude Oil Outlook Quarterly Update - 4Q18) but are on the upswing and will slowly realign with our “bullish” expectations. Prices came under heavy pressure in December 2018 due to concerns about future economic growth and potential oversupply in crude oil. While these concerns persist, OPEC’s compliance levels, combined with several official economic data releases have shown markets that the sky is not falling just yet.
We expect that in the month ahead prices will continue to strengthen although the pace of recovery will be sedate as there are few strongly bullish indicators on the horizon. The main bullish development that we will be watching over the next four weeks is the situation in Venezuela. Cutting off Venezuelan heavy crude supply into the United States could be a boon for Canadian heavy producers, who have been struggling to place barrels. While not a perfect like-for-like match, Canadian heavy could be called upon to make up for some of the 500 mb/d that Venezuela sends to the Gulf Coast. In fact, WTI-WCS differentials have already tightened up significantly, likely in anticipation of just such an event.
When it comes to the state of the global economy, signals are mixed. While Chinese industrial profits have slipped, consumer spending still seems to be growing. This month’s New Year’s celebration will be an important economic bellwether for the region. Additionally, in Europe, Britain is careening towards a no-deal exit from the EU while Germany export orders have fallen. But refined product demand remains strong and unemployment levels have continued to improve. In the US, sentiment polls for manufacturers and consumers alike are showing a negative outlook. But product demand remains strong, employment is growing, and consumer spending is rising.
We will continue to closely watch supply and demand data as initial volumes are reported. At the moment, reports from OPEC+ indicate that supply is in line with our expectations while crude runs have remained strong, driven by robust margins during December and January. Moving forward, crude runs will fall due to seasonal maintenance and tighter margins.
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