What Will Oil Prices Be In 2019?

After a run up earlier this year, crude oil prices have been collapsing in recent months. Prices dropped nearly 25 percent in November alone, the biggest monthly loss in a decade, as traders stress over a possible glut in global supplies.

Record production in the United States, Russia and Saudi Arabia has helped plummet oil prices to their lowest levels since October 2017. In addition, U.S. waivers to eight importers of Iranian oil have alleviated concerns of a coming supply shortage from the world’s 7th largest producer.

Demand-wise, a stronger U.S. dollar has made crude more expensive for global importers, weighing on usage. And concerns over global economic growth and therefore oil demand have created a bear market. Although a recent deal to suspend new tariffs for 90 days has been reached, the U.S.-China trade war is still creating uncertainty over economic growth for 2019.

So, with 2019 fast approaching, the question is: where will crude oil prices be next year?

Right before the Thanksgiving holiday, hedge funds cut their net long positions—the differences between bullish and bearish bets—in Brent crude to the lowest level since January 2016, when oil prices sunk to less than $30 a barrel.

Gains in WTI, the U.S. benchmark, will be tempered by rapidly rising U.S. crude production. The U.S. Department of the Interior believes domestic output will soar another 20-25 percent to reach 14 million barrels per day (MMbpd) by 2020. For 2019, WTI is now forecast to range from $64 to $72. This is below the $72 to $80 mark that was projected a few months ago, when it was widely expected that U.S. sanctions on Iran would continue to support prices. By comparison, WTI crude prices have averaged just over $66 in 2018.

Brent crude oil is the international benchmark, and thus more vulnerable to geopolitical and international events than WTI. Brent is also more exposed to fluctuations in global demand, which vary with prices themselves and the pace of economic growth. As such, Brent’s premium over WTI this year has mostly stood at $4 to $8 per barrel. Brent prices should average in the $72 to $80 range for 2019.

Outside of the United States, production expectations are mixed. OPEC has agreed on a production cut, with Russia recently indicating a willingness to reduce output as well. And Canada’s production—already hampered by lower prices—could start to decline due to a lack of pipelines. Yet, production is recovering in Libya and Nigeria, and Brazil output will be strong.

Despite signs of a slight slowdown, global oil demand remains healthy. With no significant substitute, new oil consumption is a yearly constant. Demand next year should increase a solid 1.5 MMbpd. Many, however, still expect a slight oversupply for the year, with backwardation in the market. For the third quarter of this year, OECD stocks jumped 58.1 million barrels, the largest increase since 2015.

It now appears that there were some positive discussions at the recent G20 summit in Buenos Aires. If the world’s major politicians really did reach agreement about trade and how to respond to an OPEC and Russia production cut, they could be offering the oil market some much-needed clarity. There is a triad of uncertainties that still cloud the outlook for oil prices: geopolitics, economic slowdown and oversupply.

Lastly, it is important to mention that a high Brent premium over WTI again in 2019 will boost U.S. crude oil exporters, which have been rising again in recent weeks to above 2.4 MMbpd. If production can continue apace, the United States could be on its way to exporting 5 MMbpd of crude, especially as more takeaway pipeline capacity from the Permian is added and Gulf Coast ports get expanded.

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