Bank of America Merrill Lynch forecasts 1.6mn bpd OPEC+ output cuts, $70 per barrel oil in 2019

If global growth collapses, the firm says Brent could drop to $35 per barrel

Bank of America Merril Lynch forecasts the average output decline from 2018 to 2019 to be 1.6mn bpd, with cuts starting in the first half of 2019.
Bank of America Merril Lynch forecasts the average output decline from 2018 to 2019 to be 1.6mn bpd, with cuts starting in the first half of 2019.

Oil price shot up to $86 per barrel of Brent crude in October 2018, leading some analysts to speculate about $100 oil on the horizon, but the price of Brent collapsed, falling to $53 per barrel by year-end. In its Global Energy Weekly report, Bank of America Merrill Lynch puts forward a few forecasts for 2019.

The firm estimates that Brent crude prices will average $70 per barrel in 2019, but noted that global demand was a key factor, "...sensitivities to economic growth are also very meaningful and previous economic meltdowns have led to collapses in oil demand."

Specifically, it estimated that "every 1% move in global GDP shifts oil demand by 0.6mn barrels per day (bpd), suggesting Brent could drop to $35 per barrel if global GDP slows down from 3.5% to 2.0%."

In terms of output, following the decision by OPEC and its allies to cut production by 1.2mn bpd in 2019, Bank of America Merril Lynch forecasts the average output decline from 2018 to 2019 to be 1.6mn bpd, with cuts starting in the first half of 2019. 

"OPEC+ members boosted output to more than offset the Iranian production declines in 2H18," the report noted, mentioning that around one third of the drop could be due to non-fundamental factors, although oversupply was one fundamental problem. "Put differently, the surplus in the second half of last year was in part artificially created by the perception of an imminent shortfall that did not materialise. But now we see a major rebalancing with Saudi and UAE likely reducing output by 1.2mn bpd from November levels."

It also estimated that Russia output would average 11.6mn bpd in 2019, down from average production of 11.8mn bpd in Q4 2018.

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