Industry / Oil and Gas

Oil

Group Research / July 15, 2019

Photo Credit - AFP

Overall Outlook

Oil prices caught between conflicting factors. Of late, oil prices have been caught between the pulls of two competing forces: Tighter supply on the back of more stringent Iran sanction, coupled with growing Middle East geopolitical tensions leading to fears of supply disruption, and 2) Demand concerns on the back of the US-China Trade War, coupled with other muted global economic data. As a result, oil prices have been struggling for a clear direction, largely depending on the timing of which supply or demand concern was most pressing. We maintain our base case scenario for some form of trade resolution to be achieved in the coming months, and our average Brent crude oil forecast of US$70-75/bbl for 2019/20 is maintained under this base case scenario. The key downside risk would be further escalation of the US-China Trade War, which could in the worst case lead to an ever intensifying cold war with no resolution of trade negotiations. In such a scenario, Brent crude oil prices could fall back to US$55-60/bbl levels, owing to the perceived slowdown in global growth.

But positive momentum expected in 2H-2019. Sustained inventory drawdowns would be the key support for oil prices in the near term. Domestic crude stocks in the US declined by 9.5mmbbls in the latest week, marking the fourth consecutive week of crude oil inventory drawdowns. We expect crude oil prices to trend higher in the second half of 2019 as tighter supply filters through the market. In the near term, inventory draws in the US should accelerate, owing to i) Potential of up to 1.0mmbpd production halt in the Gulf of Mexico in the face of tropical storm Barry, though the impact will be short-lived and ii) Stronger demand as we enter the peak of the summer driving season

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Our In-House Experts

Suvro Sarkar                               
suvro@dbs.com
+65 6682 3720

Pei Hwa HO                               
peihwa@dbs.com
+65 6682 3714

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