JP Morgan forecasts further declines for oil prices

JP Morgan has cut its outlook for oil, predicting that Brent crude prices will average $73 a barrel in 2019 — down from the investment bank’s previous forecast of $83.50 a barrel.

Scott Darling, head of Asia-Pacific oil and gas at JP Morgan told CNBC that the investment bank recently revised its outlook in part due to North American supply ramping up in the second half of next year. JP Morgan expects the price of Brent, the international benchmark for oil, to go toward $64 in 2020.

The market is now focused on the group’s next meeting on December 6 for guidance. Darling said OPEC needs to cut oil production by 1.2 million barrels a day for the whole of next year to balance the oil market.

Crude oil prices have seen ups-and-downs this year, with prices spiking to multi-year highs in October due to Trump’s decision to reimpose sanctions on Iran. Sanctions on the third-biggest producer in OPEC has put upward pressure on oil prices throughout much of the year.

Major crude oil benchmarks spiked to four-year highs one month before the sanctions went into force, but that rally has since unwound spectacularly. Oil prices have plunged 30 percent since early October, dragged lower by a broader market sell-off and growing consensus that supply will outstrip demand next year.

“We now anticipate that Saudi Arabia and Opec will cut crude supply by 1m bbl/day or more at the upcoming Opec meeting. This will be necessary to avoid severe oversupply in 2019,” said analysts at Societe Generale in a research note.

Meanwhile, analysts at ANZ bank said oil markets on Thursday “are likely to be subdued” due to US markets being closed for the Thanksgiving holiday.

Oil prices found support even as a Bloomberg report said Saudi Arabian oil production surged to a record near of about 10.8 million to 10.9 million barrels a day this month.

U.S. President Donald Trump coming out and saying he would like to see lower oil prices and wants the Saudis to continue to pump oil into the market, really has “Saudi Arabia, in our opinion, boxed in,” said Zahir. “If they try and implement a cut next year, Trump could counter with taking a harder stance on sanctions on Saudi Arabia” in response the murder of journalist Jamal Khashoggi.

That leaves the Saudis in a “tight spot if they do decide to take on the bulk of the cut,” because “it doesn’t look like Russia will be on board and with U.S. production at all-time highs and trending higher, any cut will basically be Saudi Arabia losing market share to U.S. producers,” Zahir said.

A decision by the Trump administration to grant waivers to major buyers of Iranian crude following the enactment of U.S. sanctions on the Islamic Republic had fueled a global sell off in oil. Sanctions had been expected to keep most Iranian oil off the market.

At the same time, leading producers U.S., Russia and Saudi Arabia are pumping crude at record levels, causing global supply to significantly outrun demand, according to a recent report from the International Energy Agency.

However, the Organization of the Petroleum Exporting Countries and its allies signaled earlier this month that they could enact a joint production cut. That would come just months after the group decided to ramp up output after more than a year of holding back. OPEC has reached an initial agreement to cut output at the meeting next month, but it hasn’t yet agreed on the amount, according to Reuters.