Oil prices will average close to $80/barrel in 2019, says S&P Global Platts

Interview with associate director at S&P Global Platts

Brent crude prices have surged over 27 per cent in 2018. PAUL HICKIN, the London-based associate director at S&P Global Platts, tells Puneet Wadhwa that according to their latest survey, oil prices are likely to inch higher in the coming quarter. Whether or not it touches $100 per barrel will depend on how much supply is cut in the coming months, he said. Edited excerpts:

Your forecast of $80 per barrel on Brent has come true. Where do we go from here in the next 6-12 months?

The consensus from analysts seems to be that oil will average close to $80 a barrel next year — not far off where it is now. But, there could be much volatility over that period, especially in the coming quarter. The key drivers on the supply side include Iran and Venezuela, while Libya remains a wild card. US sanctions on Iran are already having an impact, with Brent appearing to be pricing in much of the Iran risk. One of the pivotal consumers, India, now looks less likely to import much Iranian crude at the end of the year, given it has not been granted a sanctions waiver, unlike under the last US administration, and time is running out for orders to be placed.

There are views that the Brent may cross $100 per barrel. Is this somewhat far-fetched?

Brent at $100 per barrel is a great headline. The fact those stories are being generated reflects both the heightened risk levels and market tightness, but also the accompanying hyperbole. According to the latest S&P Global Platts survey of 10 top banks and analysts, there is likely to be renewed price strength in the coming quarter, but many analysts point to $100 per barrel being a material risk; not a central forecast. Expectations of a return to $100 per barrel centre on how much will be removed from the market. It should not be ruled out, given high oil prices are a big political risk for US President Donald Trump, with mid-term elections looming.  But one should not get too caught up on the number; it’s more about where oil is going long term and what underpins those trends.

What are the key risks that can trigger a further upswing in oil prices?

One big risk factor that needs to be highlighted is the International Maritime Organization’s (IMO’s) low-sulphur regulation for shipping fuel that is shaping up to become one of the biggest shocks to ripple through the oil complex, one which could cause price spikes, change in trade flows and hit every sector that consumes petroleum fuels or uses seaborne trade. Platts Analytics believes IMO 2020 will be one of the most disruptive changes to ever affect the refining and shipping industries with a global impact in excess of $1 trillion over five years — and conservatively will lift crude prices by an average of $7 per barrel in 2020.

What’s your interpretation of the recent moves by Organization of the Petroleum Exporting Countries (Opec) and statements coming from Russia?

The Russia-Saudi relationship remains central to oil market supply management and looks set to continue with more barrels being released to try to keep the market balanced. With supply management seeming a long-term project and likely to be formalised at the next Opec meeting in December, the Russia-Opec alliance has enough clout to influence supplies with almost 50 per cent market share. 

How is the oil market viewing global trade war fears now?

Despite the worsening trade spat between the US and China being a negative for the global economy, it hasn’t had a huge impact on the fundamental demand picture for oil at this stage. However, there are risks from emerging markets, given the impact of the strong dollar, while sustained higher oil prices could lead to some “demand destruction”. It should also be noted that the trade tensions add to the market uncertainty and undermines sentiment and can be difficult to resolve quickly. 

What is your forecast/opinion on the Indian crude basket?

India has tried to shift away from an over-reliance on oil and coal to fuel India’s transportation and industrial sectors and is currently the world’s fourth-largest liquefied natural gas importer after Japan, China and South Korea. However, India is still tied very much to oil as an energy source and could overtake China as the leading buyer of crude in the next decade. In the near-term, big consumers of oil like China and India will find little relief from stubbornly high oil prices, affecting inflation and overall economic growth.