LONDON • The world's biggest banks are reckoning on a rebound in oil prices next year as fears of a recession prove misplaced.
The Brent benchmark will average US$70 a barrel next year, almost a third higher than its price on Thursday, according to a Bloomberg survey of oil analysts.
Futures in London and New York plunged this quarter, with volatility soaring in its final week as crude tracked gyrations in equity markets.
Despite plans by the Organisation of the Petroleum Exporting Countries (Opec) and its allies to limit production next year to prevent a glut from forming, oil's fortunes have increasingly been driven by moves in financial assets and concerns about the global economy.
However, analysts expect that markets are about to tighten as growth stays strong, Opec's supply cuts kick in, and unintended losses in Venezuela and Iran escalate.
"We could even see something similar to a V-shaped recovery next year, on two very important conditions," said Mr Michael Cohen, head of energy and commodities research at Barclays in New York.
"One, that the reduction in Opec exports leads to a reduction in inventories. And two, that we don't see a further deterioration in macroeconomic conditions."
The recent weakness in financial assets has been led by a darkening outlook for the global economy amid a prolonged trade dispute between the United States and China, and as the US Federal Reserve embarks on tightening monetary policy.
While the ensuing retreat in oil prices has brought relief to consumers, it has battered the shares of companies such as ExxonMobil and BP, as well as the economies of producers like Saudi Arabia.
So far, signs do not point to a recession biting the oil market next year. The median forecast from 24 oil analysts in a Bloomberg survey projects that London-traded Brent will average exactly US$70 a barrel next year.
The price on Thursday was about US$53.50, while the average so far this year has been about US$72.
The median forecast for West Texas Intermediate is US$61.13. The grade traded at about US$45.50 on Thursday.
"Fundamentally speaking, we believe that prices are nearing a bottom," said Mr Michael Tran, commodities strategist at RBC Capital Markets. "Global supply and demand should reach a fine balance next year."
In the absence of a severe economic slump, most analysts anticipate that world oil consumption will expand at roughly the pace seen in recent years, powered by emerging economies such as China.
And although doubts remain that Opec will cut output deep enough to prevent a surplus, the survey shows that analysts are confident that the group's strategy will ultimately succeed.
Opec will begin implementing the curbs next month, and leading member Saudi Arabia has pledged to slash output by even more than it formally agreed to.
Some anticipate a vigorous rally. The most bullish forecasts in the survey, those of Morgan Stanley and Standard Chartered, project that Brent will average US$78 a barrel.
Opec, along with allies such as Russia, announced early this month that they would reduce supply by 1.2 million barrels a day in the first half of next year.
"The production cut announced by Opec is likely sufficient to balance the market in the first half of 2019 and prevent inventories from building," said Mr Martijn Rats, managing director at Morgan Stanley.
But with uncertainty rife in both the political and economic spheres, the range of price estimates in the survey was a US$20 gap between the highest and lowest.
US production will surge to 12.06 million barrels a day next year, according to US Energy Information Administration data, more than what the other two major global producers - Saudi Arabia and Russia - are currently pumping.
BLOOMBERG
