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NSR H1 2020 Excerpts - Crude Oil - Tug of War; the Bears Win

• At the start of H2 2019, we had an average Brent crude oil price base-case forecast of $59/bbl., which was lower than the HI 2019 average price of $66/bbl. Our forecast was hinged on our expectation for an expansion in the markets surplus position of 63kbpd (H1 19: 19kbpd) as the US ramped up crude production and compliance levels by some members of the OPEC+ dwindled. However, contrary to expectations, in H2 2019, the market swung into a deficit (0.31mbpd) on the back of a better than expected increase in demand (+1.50mbpd) which offset the rise in supply (+0.65mbpd). Interestingly, despite being in a deficit, brent crude traded at an average price of $62.3/bbl in H2 2019 compared to $66/bbl in H1 2019 when the market was in a surplus. Overall, average crude oil price over FY19 printed at $64/bbl. (FY 18: $71/bbl.)
• In 2020, we forecast oil market will record a higher net surplus of 0.14mbpd compared to 0.11mbpd in 2019. The supply from  US and  other non-OPEC producers will likely outweigh the increased cuts from OPEC and  support lent from improved demand growth. We forecast supply growth of 1.45mbpd in 2020, in line with the EIA’s forecast. Bulk of the supply growth is expected to stem from the US. This, together with increases from notable names like Brazil and Norway are expected to offset lower production from OPEC. On the demand leg, we forecast demand growth of 1.43mbpd to 102.15mbpd in 2020, in line with EIA’s estimates. Both OECD and non-OECD regions are expected drive the consumption growth, with the latter bearing bulk of it. Overall, our oil price forecast for 2020 prints at $61.3/bbl (EIA: $61/bbl) which we arrived at via interpolation of the market balance forecast. This prints mid-way of our bull and bear case scenarios of $67.5 and $57.5, respectively.