Barclays raised on Tuesday its oil price forecasts for Brent Crude and WTI Crude for 2018 and 2019, and sees the U.S. benchmark averaging $65 a barrel next year, as it expects lower supply from Iran and Libya to further tighten the oil market.
“Due to new outages and a quicker Iran supply reduction, we see Brent and WTI prices averaging $71 per barrel and $65 per barrel next year,” said Barclays, as carried by Reuters.
The British bank’s previous forecast for Brent was an average $65 a barrel in 2019. For the second half of this year, Barclays now sees Brent Crude averaging $73 per barrel, up from a previous projection of $70.
According to the bank, OPEC and Russia’s decision to reverse some of the production cuts would deplete the global spare capacity cushion and push prices up, but OPEC’s leader Saudi Arabia, as well as Russia, would be making efforts to cap a big upside in oil prices because much higher prices would destroy oil demand growth.
“Indeed, OPEC’s decision and disruptions elsewhere will deplete the market’s spare capacity cushion, raising prices,” Barclays’ analysts said, but warned that “As prices rise to higher levels, the air is growing thin and oil demand is already faltering.”
In the middle of April, Barclays expected oil prices to collapse in the second half of this year, as it saw a new supply surplus looming because of an “overstated” impact of Iran and Venezuela on the oil market. A lot of things have changed since mid-April, however. The U.S. slapped sanctions on Iran and is looking to cut off as many Iranian oil exports as possible. Venezuela’s production continues to plunge every month, while renewed civil strife in Libya chokes its oil production as oil export ports are closed. In addition, an outage at Syncrude in Canada’s oil sands is depleting stockpiles at Cushing, Oklahoma. It is expected that Syncrude will ramp up to full production in early to mid-September, one of the operators of the project, Suncor, said on Monday.
Also due to the Syncrude outage, the WTI discount to Brent has narrowed in recent weeks to $4-5 a barrel, but Barclays expects that it could widen in the fourth quarter 2018 again, to around $7.50.