Standard Chartered Cuts Oil Price Forecast by $29

Standard Chartered revealed Monday that it has lowered its 2020 average Brent oil price forecast by $29 per barrel to $35 per barrel.

The company, which believes the collapse of the OPEC+ agreement will lead to a “severe and extended price war”, lowered its second quarter Brent forecast by $38 per barrel to $23 per barrel and its 2021 forecast by $23 per barrel to $44 per barrel.

Standard Chartered said it expects Saudi Arabia to increase its crude oil output to close to 11 million barrels per day (MMbpd) in April and to 11.8 MMbpd by the end of 2Q.

“With supply ramping up at the same time as coronavirus-related demand losses reach their maximum, the short-term floor to oil prices is extremely weak,” Standard Chartered said in a research note sent to Rigzone on Monday.

“Low prices will gradually encourage demand and discourage higher-cost supply. We expect U.S. crude oil output to take the brunt of the supply-side adjustment. We forecast a fall of over 0.5 MMbpd from March to end-2020,” Standard Chartered added.

Standard Chartered said its previous forecasts showed a large coronavirus-driven first half inventory build balanced by large second half inventory draws.

“Now, we do not expect the market to balance until mid-2021, with the inventory builds reaching 4.2 MMbpd in 2Q,” Standard Chartered stated in the note.

OPEC+ is going to war with U.S. shale, according to Sandhill Strategy co-founder Katie Bays, who expressed the view in a television interview with Bloomberg on Sunday.

Commenting on the path of oil prices, Bays told Bloomberg that the floor is “kind of up for grabs because what the market is trying to figure out now is how low do crude prices have to fall to discourage U.S. producers from pumping more oil”.

OPEC held its 178^th extraordinary meeting last Thursday and ended up proposing a further 1.5 million barrel per day production cut until the end of 2020. The group met with non-OPEC counterparts to try to finalize the deal on Friday, but no agreement was reached.

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