Energy Stat of the Week by J. Marshall Adkins

Energy Stat: Global Oil Inventories Keep Falling - Raising 2018, 2019, and Long-Term Price Forecast

April 23, 2018

For much of 2017, we began our oil price updates with some variant of “fundamentals are looking good, but the oil market just isn’t getting it”. Well, no longer. With WTI and Brent this month reaching the highest levels since 2014, the market is clearly starting to “get it”. More importantly, we envision more room for the oil rally to continue into the latter half of 2018, and we are becoming increasingly bullish on 2019 and the long-term picture as well. So far, oil market fundamentals (i.e., inventory reductions) have been even more bullish than we had thought at the start of 2018. Given these strong oil inventory reductions and improving oil supply/demand drivers (lower Venezuela output and higher demand), we now believe that our already above-consensus price deck is not high enough. For 2018, we are raising our full-year WTI forecast from $65/Bbl to $68/Bbl, and our year-end exit from $70/Bbl to $75/Bbl. For 2019, we are raising our WTI forecast from $60 to $70. Beyond 2019, we now believe WTI oil prices will need to average at least $65 for U.S. producers to offset the negative impact from rising production declines. In today’s Stat, we will explain the logic behind our heightened bullishness on oil.