A combination of restricted supply, strong demand and mounting geopolitical risks are pushing up Brent Crude Oil prices to levels last seen in late 2014. On 11 May, oil prices traded at USD 77.1 per barrel, which was up 6.0% from the same day in April. The benchmark price for global crude oil markets was 15.5% higher on a year-to-date basis and was up 56.8% from the same day last year. In March, participants in the oil-cap deal led by OPEC and Russia reached the highest conformity level since the deal came into eff ect in January 2017. As a result, the OECD’s commercial stocks are now close to the fi ve-year average, which has become the metric for measuring the success of the oil cut deal. Demand for the black gold remains strong on the back of resilient global economic growth. Along with fundamental factors, oil prices have been propelled in recent weeks by mounting geopolitical threats. In particular, U.S. President Donald Trump’s decision on 8 May to reinstate economic sanctions against Iran added further upward pressure on oil prices. Although Iran represents only around 5% of global oil output, any cut in Iranian oil production will reduce supply to an already tight global oil market. Moreover, economic sanctions against Iran will heighten tensions in a region already engulfed by multiple confl icts. Our panelists do not expect that the current sweet spot in oil prices will be sustainable further down the road. Higher oil prices are allowing an increasing number of shale oil producers to ramp up production, especially in the United States. Moreover, rising trade disputes and elevated political tensions across the globe are threatening to derail an otherwise promising global growth trajectory. FocusEconomics panelists see prices averaging USD 66.5 per barrel in Q4 2018. For Q4 2019, they expect prices to average USD 66.0 per barrel.
While analysts are still penciling in recent developments, 13 panelists decided to upwardly adjust their Q4 2018 forecasts compared to last month. 25 forecasters kept their projections unchanged, while 2 cut their forecasts. Although oil prices will remain high this year, our analysts foresee some volatility going forward. The panelist forecast range for Q4 2018 runs from a minimum of USD 57.0 per barrel to a maximum of USD 81.7 per barrel.
WTI Crude Oil prices broke the psychological USD 70 per barrel mark for the fi rst time in over three years on 10 May due to strong fundamentals—limited supply and strong demand—
and mounting geopolitical risks. On 11 May, WTI Crude Oil prices traded at USD 70.7 per barrel. The print was up 5.8% from the same day last month and was 16.9% higher on a
year-to-date basis. The price was up 47.9% from the same day last year. Oil prices continued to rally in recent weeks as oil markets tighten due to reduced output by participants in the OPEC oil cap deal. Moreover, strong economic growth worldwide, particularly in the United States, is boosting demand for the black gold. In the context of higher oil prices, the U.S. rig count continued to increase in May, paving the way for the country to reach new oil production highs. Against this backdrop, the Energy Information Administration reported a draw of 2.2 million barrels in U.S. crude oil inventories in the week ending on 4 May, nearly doubling the 700,000-barrel reduction expected by market analysts. As a result, U.S. crude oil inventories are in the lower half of the average range for this time of year. Furthermore, the U.S.’s decision to withdraw from the Iran nuclear deal on 8 May is adding to the bullish sentiment. Looking ahead, FocusEconomics panelists see prices for WTI Crude Oil declining from their current elevated level mainly due to the U.S. shale boom. For Q4 2018, analysts expect prices to average USD 62.8 per barrel. They see prices increasing slightly to USD 63.2 per barrel in Q4 2019. In the wake of higher oil prices, 11 panelists upgraded their projections for Q4 2018 from last month, whereas 2 cut their forecasts, and 19 forecasters left their projections unchanged. Greater global uncertainty is translating into diverging forecasts among our analysts. For Q4 2018, the maximum price forecast is USD 76.0 per barrel, while the minimum is USD 57.0 per barrel.
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