JP Morgan upgrades 2020 oil price outlook

Investment Bank points to OPEC cuts, Brexit certainty and US-China optimism

American investment bank JP Morgan has increased its oil price outlook for 2020 and has predicted that the commodity’s supply-demand balance will tighten as a result of output cuts by OPEC+ and improving growth in emerging markets.

The American firm revised its Brent price forecast from $59 to average $64.5 per barrel in 2020, but predicted a drop off in 2021 to $61.50.

It envisions a similar trajectory for the price of West Texas Intermediate (WTI), with prices to hover around $60 next year but to fall to an average of $57.50 in 2021.

The bank stated: “In contrast to our September forecast that the global oil market will be in surplus of 0.6 million barrels per day (mbpd) on average for 2020, we now estimate the market will be in deficit of 0.2 mbpd.”

At a bi-annual meeting earlier this month the Organisation of the Petroleum Exporting Countries (OPEC), which includes the likes of Saudi Arabia and Iran, agreed to cut oil production by a further 500,000 barrels per day, bringing the total cuts to 1.7 million barrels daily. Its allies, including the second largest oil exporter in the world, Russia, also agreed to cut oil output to keep the price stable.

The agreement was made in part to prepare a soft landing for the initial public offering of Saudi Aramco, the state-backed oil and gas company. This was on the whole successful with the oil giant breaking a $2tn (£1.5tn, €1.8tn) valuation on Monday for a short time.

The end of Brexit uncertainty and the return of a solid conservative majority in the United Kingdom’s general election has also calmed markets. With a limited trade deal between the United States and China likely to be signed by Christmas demand for oil will increase once industrial tariffs are listed.

The price of oil reflects these recent positive geopolitical developments reaching three month highs. In late afternoon trading Brent Crude currently stands up 0.99 per cent at $65.99 per barrel, while WTI Crude stands at $60.86, a gain of 1.08 per cent.

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