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S&P Global Ratings slashes Brent oil view to $55/b in 2019

Highlights

Brent crude 2019 view cut $10 to $55/b

Sees OPEC cuts offsetting US shale growth

London — S&P Global Ratings has slashed its average crude oil price assumptions by $10 a barrel for 2019 in response to a worsening picture for global demand.

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The institution said Thursday it has lowered its view for Brent crude to $55/b, from $65/b and WTI cut to $50/b, from $60/b for the year ahead.

The change in assumptions come after Brent plunged from a peak of $86 a barrel in early October to briefly trade below $50 a barrel at the end of December. Jitters have surfaced across the oil market over global demand growth and rising global inventory levels.

"The on-going trade war between the US and China as well as news of China's economic slowdown, has led to concerns about the outlook for global demand," S&P Global Ratings said in a statement with its new price assumptions. "

Moreover OPEC, particularly Saudi Arabia and Russia, were producing at record levels to offset what was expected to be a meaningful reduction in global supply due to the Iranian economic sanctions," it added.

The sanctions on Iranian oil imports fell short of expectations on November 2, as the US granted waivers to eight producers for six months which included pivotal buyers China and India. That wrong-footed OPEC with Saudi Arabia and Russia both pumping more than 11 million b/d at that time in a bid to offset the risk of lost Iranian barrels and left the market awash with crude.

The rating agency noted that the OPEC announcement "did little to stem the decline in oil prices as concerns about global demand and whether OPEC would honour the production cuts, continued to put pressure on prices" but said "the production cuts at a minimum, will offset the anticipated growth in 2019 from US shale production."

Much of the US shale production will come from the Permian Basin, which is constrained by a lack of pipeline capacity. S&P Global Ratings argues that "production from the region has bumped right up against the 3.4 million b/d of regional take out capacity."

However, S&P Global Platts expects an additional 2.6 million b/d of pipeline capacity will come on line in 2019 and in early 2020, so the clock is ticking on OPEC's efforts to rebalance the market.

Analysts have been scrambling to revise their forecasts amid a rising tide of uncertainty over the economy, Iran sanction waiver extensions, US shale output and OPEC cuts.

S&P Global Ratings' competitor Moody's has also recently noted concerns about the oil market. The agency has set a $50-70/b range for WTI in the medium term, according to a press release issued Thursday.

--Paul Hickin, paul.hickin@spglobal.com

--Edited by Andy Critchlow, newsdesk@spglobal.com