Crude oil has some near-term support - Westpac

According to Justin Smirk, Research Analyst at Westpac, Crude oil has some near-term support, but surging US production & a moderation in demand will push prices lower in late 2018.

Key Quotes

“Oil prices have fallen back from their recent high of $71/bbl – a price we felt that was excessive of fundamentals.”

“US crude production is expected to expand by more than 1 million bpd this year but prices will remain well supported through the first half of 2018 by declining US crude oil inventories, a rise in US refining output and an in increase in US crude exports.”

“There is also the near term political risk for prices associated with the fate of the Iran nuclear deal. Geopolitical risks have become more important for prices as the crude market has tightened. A larger than expected decline in Venezuela's production is another risk.”

“However, as we move into the second half of the year Westpac is looking for prices to weaken as the market absorbs a rising ‘wave’ of US production and a flattening in demand. This should drive a global stock build through late 2018 despite continued OPEC and non-OPEC production restraint.”

“We are forecasting Brent to fall to $66/bbl by the end of 2018 before hitting a low of US$50/bbl in mid-2019. Our year average forecasts are $65/bbl for 2018 and $53/bbl for 2019.”