Highlighting the volatility of the global oil market, for the second time this year, S&P Global Ratings revised its Brent crude price forecast.
Initially dropping the outlook from $65 per barrel to $55/bbl in January, the analysts raised their forecast for the price of Brent crude oil to $60/bbl this year, due to changes in the world economy and ongoing production cuts from OPEC and Russia, according to a March 20 report.
The production cuts have led to a rally in oil prices, primarily for Brent, S&P Global Ratings said. Brent crude, which closed at $50.57/bbl on Dec. 28, 2018, climbed to $65.06/bbl by March 15.
"[I]t appears that production cuts by Russia and OPEC will continue to support oil markets for the foreseeable future," the report said.
OPEC and 10 non-OPEC allies led by Russia are in the third year of collective production cuts aimed at supporting oil prices, with the most recent round of curbs hammered out in December 2018. At that time, the parties agreed to reduce oil production by 1.2 million bbl/d, with members trimming output by 800,000 bbl/d and non-OPEC members reducing production by 400,000 bbl/d.
The OPEC cut agreement expires in June. The cartel will leave the market waiting until close to the June expiry to learn whether the deal will be extended into the second half of the year. The 24-country OPEC/non-OPEC coalition will make a decision at its June 25-26 meeting in Vienna.
According to the U.S. Energy Information Administration, OPEC crude oil imports to the U.S. declined in the second half of 2018, from an average of 1.5 million bbl/d in the first six months of the year to 1.1 million bbl/d by December 2018.
"In addition, looser monetary policy guidance from several central banks has reduced concerns about global economic activity. Other factors which we deem to be wildcards, but we deem supportive for oil prices, are the continuing and rapid declines in production from Venezuela, fluctuating exports from Libya and rhetoric from the U.S. State Department that currently seems to indicate that waiver sanctions will be lifted for the eight countries originally exempt from Iranian sanctions, which could reduce oil supply," S&P Global Ratings said.
The analysts, however, left their price projection for West Texas Intermediate crude oil for the year unchanged at $50/bbl.
"While the price of WTI has also responded positively, it has not rebounded quite as strongly as Brent. This is largely due to expectations about the continuing growth of oil production from the Permian Basin," Ratings said.
While the Permian is experiencing pipeline takeout constraints, an additional 2.6 million bbl/d of pipeline capacity is anticipated to come on line this year and in early 2020, which will alleviate the issues, the agency said.