Crude Gains on the Week But Analysts Downgrade Price Forecasts

Friday August 30, 2019

Concern over Hurricane Dorian potentially quashing demand in the U.S. caused crude prices to drop on Friday, but not enough to prevent the commodity from heading toward the biggest weekly increase since early July.

Brent fell 65 cents to settle at $60.43 per barrel, while West Texas Intermediate settled down $1.61 to $55.10 per barrel; for the week, WTI gained by 1.7 percent and Brent by 1.8 percent, partly due to hopes that trade tensions between the U.S. and China are easing, according to pundits (a notion spurred by reports on Friday from China's foreign ministry that both parties are maintaining effective communication).

Of the storm rapidly approaching Florida, John Kilduff, founding partner at Again Capital, noted that "The latest modeling has Hurricane Dorian avoiding the Gulf of Mexico, while raking the entire state of Florida, turning it into a demand destruction event for the energy market rather than a supply disruption event."

In keeping with Friday's emerging spirit of optimism, it's noteworthy that traders seemed to brush aside a report that the Organization of the Petroleum Exporting Countries (OPEC) boosted output in August for the first month this year: the cartel pumped 29.61 million barrels per day (bpd) this month, up 80,000 bpd from July's revised figure and due to higher supply from Iraq and Nigeria.

But there's no doubt that the analytical community is still mired in fear and doubt about crude's resiliency in the near future: a Reuters poll of 51 economists and analysts released Friday showed that they forecast Brent as averaging $65.02 per barrel in 2019, down about 4 percent from the previous month's $67.47 projection and the lowest average forecast for Brent since March 2018.

Norbert Ruecker, head of economics and next-generation research at Julius Baer, remarked, "Demand is set to contract in the developed countries while it grows ever more slowly in emerging countries.

"While we see aggressive monetary policy ending the downturn and prolonging the economic cycle, next year's expected growth rates are too lackluster to lift oil demand meaningfully."

Soni Kumari, analyst at ANZ, complained that "The ongoing U.S.-China trade disputes and emanating risk of economic slowdown will be the key factors affecting prices for the rest of this year and in 2020."

The lone voice of reason among the surveyed experts was Oliver Allen, economist at Capital Economics, who said, "We think oil markets may be overreacting to the bad news on demand and seem to have lost focus on the constrained backdrop for supply."