Geopolitics and tightening supply to impact oil prices in 2018-19

Global oil supply and demand balances are expected to tighten over the next 18 months, driven by the continued collapse of Venezuelan output, according to Bank of America Merrill Lynch (BOAML). A collaboration between OPEC and Russia to set a floor on oil prices with a reduction of oil output cuts by these countries of 450,000bpd from 3Q18 to 4Q19 is also expected to play its part in squeezing availability. In addition, higher interest rates and a stronger US dollar are forecast provide near-term challenges as do US supply bottlenecks.

The research house also predicts downside risks to Iranian crude oil exports, particularly if a new Iran deal is not reached in the next six months.
 
These developments are expected to lead to a shortfall of 630,000bpd this year and 300,000bpd in 2019. Brent prices are projected to rise to US$70/bbl and US$75/bbl. For the 1Q19, BOAML expects a US$90/bbl target.