Oil–Beyond Geopolitics

6/14/2018 - Report
ic_blogtagGross Domestic Product (GDP)Oil & Gas

Photo by Joanna Nix on Unsplash.jpg

  • The peak may be behind us. A number of the drivers underlying recent oil price strength could diminish in strength or reverse. A currently elevated geopolitically induced risk premium might shrink once actual market flows become clear. Financial positions might shift towards a less bullish stance. It is our view that the peak of the economic cycle is behind us. Further, high oil prices by themselves could have a restraining impact on demand. There will be supply side response. Substitution is encouraged.

  • Base case USD 72/bbl. (2018) We assume 2018 GDP growth of 3.3%, 2.5% USD appreciation, a return of financial net long positions to their two year average, and 0.5mbpd supply loss on the assumption that most of the loss from Iran will be mitigated while Venezuelan production shortfalls will not. Opec has about 2mbpd of spare capacity and there may be room for marginal growth from US production. 2019 central forecast USD 69/bbl Sector impact. 

  • A number of sectors are now finding themselves with increased input costs. These are notably specialty chemicals, airlines, ship-ping, road transport, mining and the heavy industry and manufacturing sectors.