Would WTI grow up to $65
The beginning of 2019 has become one of the most successful period for the oil market in recent years. From January 2 to February 20, a barrel of the WTI has added about 23% to the price. Many investors are thinking about fixing profit. After all, a slowdown in the economy of China, as well as the rapid production growth in the United States, could hurt the energy market.
The main factor for investors’ fears is a sharp increase in US oil production, which is combined with a slowdown in the global economy.
So, in 2018, the US daily surpassed Saudi Arabia and Russia in average daily production. The US government expects that in 2019, production will reach 12.4 million barrels per day, and in 2020 – 13.2 million barrels. Thus, in 2020, the United States will become a net exporter of oil and refined products for the first time in many decades.
At the same time, OPEC predicts that global oil demand in 2019 will grow by just 1.24 million barrels per day – up to 100 million. Allies expect supplies from countries that are not OPEC members will grow by 2.17 billion barrels.
Align the situation and balance the supply and demand of the country of the cartel together with Russia are trying to reduce their own production. At the end of last year, the Allies managed to agree on a decline in production in 2019 by 1.2 million barrels per day in order to maintain a balance of supply and demand. This will provide strong long-term market support.
Prices may remain relatively stable throughout the year, unless other risk factors intervene. Among them, the most significant is the slowdown in the global economy especially in China that is the largest oil importer in the world.
Another significant factor is the dollar index. Historically, oil was under pressure during periods of dollar strengthening and had gains during a decline. Judging by the latest comments of the Fed, the Regulator has revised the policy in favor of mitigation. In the next six months, analysts do not expect a rate hike. If other force majeure does not intervene, this factor will play against the dollar in the coming months, which will also support the price.
Is $65 per barrel an achievable price?
The U.S. Energy Information Administration expects the average price of WTI oil in 2019 to fall to $54.79 from $65 in 2018. Thus, the forecast of the department is approximately correlated with the current price ($56.5 at the time of this writing). However, the fluctuations of oil quotes during the year often are essential, so we can expect a wide price range.
Judging by the technical picture, the scenario of the price growth up to $65-66 over the next 1-2 months looks likely. This option looks reasonable in the light of the above fundamental factors too.
The longer-term prospects of the oil market will largely depend on how significant the slowdown in the global economy will be.