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Brent average trimmed but above $75/b in 2019: consensus

OPEC cuts, Iran sanctions seen key to price support

Oil demand outlook more fragile but still solid

London — Brent crude oil will recover to average above $75/b next year despite clouds looming over global demand as OPEC and its producer allies move to defend prices by preventing a new supply glut, according to top banks and oil brokers surveyed by S&P Global Platts.

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Front-month spot Brent will average $75.50/b in 2019, down from forecasts of $78.51/b in early October, according to a survey of 11 top oil forecasters. Brent prices this year are expected to average $73.91/b, compared with $73.26/b so far and down from last month's $74.40/b survey result.

Oil prices have slumped over 25% since hitting near four-year highs of $86/b on October 3, after a series of factors weakened the market outlook. US shale output has beaten expectations, Saudi and Russian exports have surged and the US approved sanctions waivers for eight buyers of Iranian oil.

Elsewhere, Libya and Iraq have continued to pump more oil than widely expected and Venezuela's oil industry has not imploded as some market watchers feared.

While Venezuela's crude supplies have fallen by more than 1 million b/d since 2016, recent data suggest production is flattening out. The IEA estimates that Venezuelan output has been in the range 1.25-1.30 million b/d for the past five months.

On the demand side, oil markets are concerned about demand growth slipping, particularly outside the US, in part due to the recent run-up in oil prices.

Brent seen recovering in 2019 despite sell-off

OPEC CUTS EXPECTED

But with OPEC and its key producer allies set to consider resuming output cuts to tighten the market at their meeting on December 6 in Vienna, most market watchers believe prices are set to recover from current levels next year.

"OPEC has indicated its determination not to let the market slip back into oversupply in 2019, and we think it has given a clear indication of its intention to defend prices in the $70s," HSBC said in a note last week.

Following strong signaling from OPEC's key players, the bank said it expects a cut of at least 1 million b/d to be formalized at the December meeting.

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Societe Generale also believes OPEC will cut crude supply by 1 million b/d "or more" in December to avoid "severe oversupply in 2019 and to maintain Brent prices within the desired range of $70-80." Barclays noted that, given the market already expects a 1 million b/d cut, anything less might could lead to further market weakness.

In a November 15 note, the bank said it believes current prices have overshot to the downside and expects a rebound by year-end. In addition to OPEC's expected cut next month, Barclays notes that US Iran sanctions waivers are only for 180 days and will be readjusted by early May.

The bank is keeping its 2019 Brent forecast unchanged at $72/b and continues to see risks skewed to the upside next year.

DEMAND HOLDING UP

Although rising in recent weeks, global oil stocks have broadly returned to their five-year average and Barclays said it expects the amount of inventories in the OECD on a days of demand cover basis to remain supportive of prices through the end of next year.

On the demand side, some oil analysts believe concerns over the health of the global economy due to the US trade wars may also be overdone.

Societe Generale expects global oil demand to remain "healthy", with growth of 1.3 million b/d in 2018 and 1.4 million b/d in 2019.

"Given that the global economy is losing momentum, especially outside the US, oil markets are worried about demand weakness developing. However, there is little evidence of this so far," Societe Generale's Michael Wittner said in a note Wednesday.

Goldman Sachs on Tuesday said it sees the potential for a sharp collapse in demand as a "low probability outcome" given current economic momentum.

Morgan Stanley, which expects Brent to average $78.13/b next year, said on November 5 that is sees a balanced rather than tight market in the months ahead. "Global inventories and spare capacity are still low by historical standards, supporting oil prices. However, we no longer see a further tightening from here on."

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

--Edited by Jonathan Fox, newsdesk@spglobal.com