Oil to rise above $70 by January 2019: MUFG

The decision by OPEC+ members last week to reduce oil output by 1.2 million barrels per day (mbd), will be oil price supportive over the winter months and will curb oversupply in the near-term, MUFG noted in its latest report on Monday.

“We reiterate our view that this agreement will lead to an eventual return of the Brent forward curve into backwardation, and with it Brent to rise above $70 a barrel by January 2019,” the report added.

“The OPEC+ cuts will assist in rebalancing oil markets in the first half 2019, in conjunction with further declines in Iranian production given US secondary sanctions as well as the continuation of pipeline constraints curbing shale supply growth,” the report added.

On the demand side of the equation, MUFG views that lingering global trade tensions could potentially curb global appetite for crude.

Noting that Shale remains the firm global swing oil producer, the report said, “The shale response from late 2019 and beyond is likely to be robust, but there are key uncertainties relating to productivity gains and cost inflation.”

MUFG report also said its reservations heading into 2019 is that this OPEC+ agreement has effectively given US shale producers forward guidance on finalizing their capital expenditure plans for next year with some implicit guarantee of higher oil prices.