Brent seen at $40/b in 2020 on OPEC+ cuts, US oil output to fall: IIF

Dubai — The price of Brent is forecast to average $40/b following the agreement of OPEC+ countries to cut output through April 2022, while US output is likely to fall on lower breakeven prices for shale producers, the Institute of International Finance said in a report on Tuesday.

The Washington-based institute is keeping its forecast for Brent at $40/b in 2020 despite Sunday's historic agreement to cut 9.7 million b/d of oil production. Brent was trading lower 0.85% to $31.47/b at 8:42 AM GMT time.

The IFF is also projecting additional reductions of up to 3.5 million b/d coming from outside the coalition.

US production is forecast to drop by 900,000 b/d to 12.3 million b/d in 2020, while output from Canada's biggest crude-producing province of Alberta will also dip, it said.

"While the Trump administration is not allowed to mandate cuts due to antitrust laws, U.S. crude oil production is likely to fall because current prices are below the level that shale producers need to break even (about $45 a barrel)," IIF said. "Most U.S. energy companies have slashed spending and drilling plans in recent weeks, which will naturally lead to a drop in production in 2020 and 2021."

The 23-country OPEC+ alliance agreed on Sunday to rein in 9.7 million b/d of crude oil production for May and June. The collective OPEC+ cuts will ramp down to 7.7 million b/d for the second half of 2020, then to 5.8 million b/d for all of 2021 through April 2022.

Shale output

US shale oil production will fall to 8.53 million b/d in May, down 183,000 b/d from April, with declines seen in every major basin, the Energy Information Administration said Monday.

EIA last week cut its US oil output forecast by 1.23 million b/d for 2020 and by 1.63 million b/d for 2021. It forecast overall production -- including shale, offshore Gulf of Mexico and Alaska -- to average 11.76 million b/d in 2020 and 11.03 million b/d in 2021.

Global oil demand in the third and fourth quarters are likely to recover, with total 2020 demand set to drop on average by around 8 million b/d, which represents to over 8% of global consumption, IIF said in the report.

"Downside risks to oil prices include weak compliance with the OPEC+ deal and slower recovery in global demand for oil in the second half of this year," it said.

IIF expects Saudi Arabia, the world's biggest oil exporter, to weather the low crude price environment, but its fiscal breakeven price needed to balance its budget is likely to rise in 2020 to $83/b compared with $77/b before the cuts.