Oil Price Update – Macro Concerns Tank Crude but Tightness Ahead

Refinery runs are set to surge into a market lacking crude through 3Q19, a fundamental setup in many ways the opposite to 4Q18. However, fundamentals can only take you so far in a market subdued by Trump’s trade wars. Ultimately, a quarterly deficit may not matter if financial participants cannot look past a perceived economic slowdown and an expected surge in U.S. production as new Permian-Gulf Coast pipelines are brought into operation. We are therefore at something of an impasse, with Trump’s meeting with Xi at the upcoming G20 meeting (28-29th June) important for near - term sentiment. As our Asia economists see limited scope for a positive outcome, we believe crude will remain capped in the near - term, despite physical and fundamental tightness. We therefore lower ou r forecast to reflect these realities, although we still expect the second half of 2019 to be constructive. We forecast Brent to average $68/bbl in 2019 ($70/bbl in H2), and $70/bbl in 2020. WTI’s discount to Brent will narrow from $8/bbl in 2019 to $6/bbl in 2020 as increased export capacity links the U.S. to international markets further.