Key risks to near-term oil price

Global oil demand is growing at its weakest rate since 2012 while global oil supply disruptions continue to be at their highest levels in almost 30 years, according to Bank of America Merrill Lynch (BoAML). Key risks to the oil price remain with US trade wars and tensions with Iran affecting demand and supply, respectively. In addition, the bank also highlights the “ultimate ultra-bearish scenario” where China relinquishes trade negotiations, ignores US sanctions and proceeds to purchase Iranian oil.

With fears of an escalating trade war following the new US tariffs on Mexico affecting business confidence and the possibility of manufacturing PMIs deteriorating further, prices are on track to fall significantly below US$70/bbl, the level predicted by BoAML for 2019.

However, the recent collapse in oil prices has been driven by near-term contracts while long-dated prices have shown little movement. BoAML analysts suggest that there is strong support to long-dated prices and expect Brent crude oil prices five years out to hold firm at US$59/bbl, the average noted in the past four years.