The upcoming OPEC+ meetings on March 5 and 6 are now on the critical path.
That’s according to a new research note from Jefferies, which reveals that the company now believes OPEC+ needs to make “much steeper” cuts than the 600,000 barrel per day recommendation from their technical committee to support prices.
“At least a one million barrel per day cut for 2Q strikes us as necessary to merely moderate inventory builds, and we confess to underestimating demand destruction over the last several weeks,” Jefferies stated in the note.
Jefferies said the two-week backwardation pattern in the Brent forward curve that had given it some encouragement “completely collapsed” this week.
“Flat prices have fallen sharply and the return to contango is a signal that the market is preparing for a longer duration of coronavirus demand destruction,” Jefferies stated in the note.
Jefferies’ current Brent crude oil price estimate for 2020 is $59 per barrel. The company estimates that Brent will average $58 per barrel over the first two quarters of the year and $60 per barrel over the final two quarters.
On Thursday, Rystad Energy revealed that it had cut its 2020 Brent crude oil price forecast from nearly $60 per barrel to around $56 per barrel. In addition to the cut, the company warned that another negative revision “might be around the corner” due to increasing downside risk.
Earlier this month, the U.S. Energy Information Administration (EIA) also cut its Brent oil price forecast for 2020. The EIA’s Brent spot average forecast for this year is now $61.25 per barrel. Its previous forecast stood at $64.83 per barrel.
Fitch Solutions Macro Research (FSMR) also revised down its Brent oil price forecast for 2020 in February. FSMR now sees Brent averaging $62 per barrel this year, which marks a $3 drop compared to its previous forecast in January.
To contact the author, email andreas.exarheas@rigzone.com
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