Crude Oil: is in a multi-year-long bull market and WTI is likely to trade over $70 a barrel in 2019 and over $80 in 2020. The “oil glut” has disappeared, with OECD oil inventories falling by the fastest pace in history (334 million barrel surplus in January 2017 to a 20 million barrel deficit in March 2018), indicating an undersupplied market. With oil demand growth of about 1.8 million barrels per day this year and OPEC’s continued strong compliance to its production cut, we see inventories continuing to fall and reaching a 10-year low by year-end.
Looking to 2019 and beyond, even with the full amount of OPEC shut-in production returning to the market, we see inventories continuing to fall in the coming years with spending, labour, equipment and pipeline constraints on U.S. production and non-U.S., non-OPEC production about to enter into a multi-year decline. Eventually the oil price will have to rise high enough to rationalize demand in order to find balance, as the four to six-year lead time on large-scale mega projects prevents the industry from reacting quickly enough to any price spike or supply interruption. While the U.S. is good, it isn't good enough to meet global demand growth and offset the impact of non-U.S., non-OPEC production declines, with OPEC having limited ability to grow for the next several years due to underinvestment.
While sentiment remains close to all-time historic lows, there are signs of optimism emerging. The energy market has begun to outperform the broader market even on days when oil is down. Strategists are upgrading the sector and corporate M&A has begun. We see the potential to make over 100 per cent on many situations. The risk versus reward in the energy sector has never been better in my 15-year career.
Eric Nuttall on BNN.ca Tuesday April 17th @ 1300ET |
