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Trims 2019 forecast to $66.50/b

Geopolitics adding to supply risks

London — Global oil markets will likely tighten during the second half of the year, supporting prices, driven by the expected extension of OPEC output cuts, a pickup in demand and rising geopolitical risks, HSBC said Monday.

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Trimming its 2019 Brent oil price forecast to reflect a recent escalation of trade-related demand-side concerns, the UK-based bank said it expects a "sharp seasonal increase" in oil demand during the second half of the year, with levels some 1.5 million b/d above the first half.

Despite strong growth in US shale oil production, the bank also said it expects to see "significant declines" in global inventories in the coming months, lending further support to prices.

"The recent escalation in political tension in the Middle East adds substantially to potential supply-side risks. We have been surprised by the relative lack of crude price response to some of these events until just recently, which probably reflects the prevailing sentiment of a market in oversupply," the bank said.

Brent crude will average $66.5/b during 2019, down from a previous estimates of $67/b, HSBC said, noting that rising US stocks and concerns over broader demand growth have hit oil markets of late.

HSBC lowered its Q2 Brent assumption to $68.3/b to reflect market weakness and left its Q3 and Q4 assumption unchanged at $67/b. The bank also left its 2020/21 Brent price assumptions unchanged at $70/b.

"The balance is set to tighten against a backdrop of rising geopolitical uncertainty," the bank said. "Supply issues haven't gone away and outside the US, the market remains tight ... We would expect to see more signs of this tightness emerging in the next few months."

Brent crude was trading at $65.30/b in early Europe trade Monday, some $11/b higher than the start of the year but about $10/b lower than a recent high of $75.60/b on April 25.

Earlier this month, the International Energy Agency cut its 2019 demand growth estimate by 100,000 b/d, to 1.2 million b/d, citing expectations of deepening world trade disputes denting economic activity.

S&P Global Platts Analytics expects the oil market to tighten further in the second half of the year due to further supply restraints and relatively healthy demand, with the International Maritime Organization's 2020 lower marine fuel sulfur cap potentially pushing Brent crude toward $80/b by end-2019.

-- Robert Perkins, robert.perkins@spglobal.com

-- Edited by James Burgess, newsdesk@spglobal.com