Analysts See More Uncertainty, Volatility, and $60 Oil for 2019

Analysts see economic outlook, not OPEC, as the focus for oil markets. File Image / Pixabay

Monday's crude price declines despite the Organization of the Petroleum Exporting Countries (OPEC) agreeing to cut back production in order to avoid a possible inventory glut was accompanied by a near-unanimous consensus among pundits that market volatility is here to stay.

Damien Courvalin and Jeffrey Currie, analysts for Goldman Sachs, said in a report that OPEC's exemptions for Iran, Venezuela and Libya make the efficacy of the cuts uncertain, and that only a drop in stockpiles and evidence of the cuts being implemented will enable a sustained price rally.

They stated, "The need for this physical evidence emanates from both the surprisingly large surplus of the global oil market in the second half of 2018 as well the absence of a clear picture on the implementation of the cuts."

They went on to express their concern for the second half of 2019, "as OPEC+ attempts to sequentially grow and given an expected stabilization in Iran production, the unleashing of the Permian growth and back-end loaded growth in Canada, Brazil, and Norway."

Martijn Rats, analyst for Morgan Stanley, said crude's highs of early October are unlikely to be achieved again, and he pegged Brent at reaching $67.50 per barrel by the second quarter of next year, $10 lower than the bank's previous estimate.

Citi was even more downbeat in its estimation of what will happen in 2019: it said in a research note that "the more OPEC+ tries to support prices by withholding oil from the market, the more they give the U.S. shale sector an out from rationing supply growth themselves" - and it predicted international oil prices will average only $60 per barrel next year (unless the OPEC cutback deal falls apart, in which case Citi predicted oil falling back into the $40s).

For his part, Ryan Lance, chairman and chief executive officer for ConocoPhillips, told Bloomberg television that "It's a well supplied world" with regards to crude supply, "and I think the [market] volatility is here to stay, which our company is trying to embrace, work through the cycles, low end, high end, because we do think volatility is here to stay, but hopefully the actions over the past week will dampen that volatility out."

John Kemp, crude market analyst for Reuters, wrote that OPEC's efforts "should offset the softer enforcement of U.S. sanctions on Iran" and "may be able to avert a large build up in excess oil inventories next year and a collapse in prices similar to 2014/15."

However, he added "there is little the group can do about the deteriorating economic outlook, which implies the need for a period of lower oil prices to restrain production and stimulate consumption to keep the market balanced."

Meanwhile, Jim Tisch, chief executive officer of Loews Corp., expressed a fervent wish for a rebound that will bring crude prices back to about $75 per barrel - a level, he explained to Bloomberg television, is necessary for U.S. producers: because with oil at $50 per barrel, "they can't find oil and produce it profitably; they're borrowing money, and they're scraping along."

Last month, with an eye on the broader economic picture, Peter Kraus, CEO and chairman of Aperture Investors, bravely defended oil prices at $50, saying that "I think oil at a low price is stimulative to the economy, I think it's something that has been positive: [it's] a positive signal for inflation, it's a positive signal for the cost of production - but it's a negative signal to future demand."