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Nigeria Strategy Report H1 2019 Excerpts- Crude oil - Not Great but not all gloom either

• In this session, we continue discussion with the crude oil section of our core strategy document – the Nigeria Strategy Report. In this piece, we review developments in the global crude oil market over 2018 and delineate our outlook for the crude oil market over 2019.
• At the start of the second half of 2018, we had projected a steady rebalancing in the oil market, reflecting resilience in oil demand, lower supply from Iran and falling global crude oil inventory, with our interpolation between changes in balance and Brent crude resulting in a base case forecast of $72.5/bbl. over H2 18. In sync with the view, average crude oil price over the period printed at $72.22/bbl. hinged on market reaction to sanctions on Iran by the US which was announced in May. That said, the crude oil market was well greased over the period with average supply expanding by 2.14mbpd to 101.48mbpd in H2 18 relative to 99.33mbpd in H1 18. Production over the period grew at a faster pace in Q3 (+1.44mbpd) than Q4 (+970kbpd), with the US boosting the supply growth in both quarters. On the demand side, consumers’ appetite for crude remained robust over H2 18 (+390kbpd), albeit weaker than in H1 18 (+1.62mbpd), due to the slowdown in industrial and manufacturing activities which has impended global economic growth. On balance, the faster pace of growth in supply than demand led to a reversion of the oil market to a net surplus position of 940kbpd in H2 2018, compared to a deficit of 20kbpd recorded in H1 18.
• Going into 2019, we forecast growth in supply by 1.19mbpd to 101.6mbpd, on average, with a bulk of the production still to stem from the US and other non-OPEC producers. On the demand side, we estimate a weaker pace of growth in 2019 by 510kbpd to 100.45mbpd, compared to 1.39mbpd growth in 2018. Weak global economic growth is expected to impede oil demand growth. Similar to 2018, we estimate weaker demand from the OECD countries, following declines in Japan, as well as weaker growth in US demand. Among the non-OECD, we estimate demand growth of 460kbpd, compared to 1.03mbpd posted in 2018. Appetite for crude in India and other non-OECD regions is expected to outweigh decline in China. On balance, the market is likely to extend the net surplus position in 2019. Based on our interpolation between changes in net supply and Brent crude, we update our crude oil forecast to $50/bbl.-$60 bbl with a base case of $55.95.