Oil Prices Attempt Recovery following Epic Selloff; 2019 Forecasts Point to Recovery
Oil prices were in recovery mode Wednesday after panicked traders crashed the black commodity on Christmas Eve over fears of a slowing global economy. While analysts generally agree that the selloff was overdone, significant risks stand in the way of a more sustained rally into the new year.
The West Texas Intermediate (WTI) benchmark for U.S. crude futures rallied sharply midweek, reaching a session high of $44.42 a barrel on the New York Mercantile Exchange. WTI last traded at $44.04 a barrel, having gained $1.51, or 3.6% on the day.
Brent crude, the international futures benchmark, added $1.13, or 2.2%, to trade at $51.90 a barrel on London’s ICE futures exchange.
Oil crashed more than 6% on Monday, its worst drop in roughly three months. The crash dragged prices to their lowest level in nearly two years.
Global investment banks believe crude prices are due for a sizable recovery in 2019, though downside risks could derail that outlook. As CNBC reported Wednesday, the banks have priced U.S. crude between $59-$66 next year while the range for Brent is $68-$73.
Below is a breakdown of how those forecasts measure up.
Risks tied to global trade, economic growth and U.S. crude production could take prices on a completely different trajectory than the forecasts presented above. Emerging Asia, which accounts for two-thirds of demand growth, is one key region that has gained considerable attention. Demand in these markets is expected to slow in 2019, based on recent estimates.
Macroeconomic concerns have undermined efforts by global producers to rein in their supplies. Earlier this month, the Organization of the Petroleum Exporting Countries (OPEC) and Russia agreed to dramatic output cuts beginning in 2019. Since OPEC announced a 1.2 million-barrel-per-day reduction in supplies, crude prices have continued to stumble and are currently down roughly 40% from their October peak.
In terms of data releases, the American Petroleum Institute (API) will report on weekly crude supplies later in the day. Last week, the industry group reported an inventory build of 3.45 million barrels. Higher inventories are generally seen as bearish for crude prices.
The U.S. Energy Information Administration (EIA) will release official inventory numbers later in the week.
Baker Hughes Inc., an oilfield service provider, will report on active U.S. rig counts on Friday.
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