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Political risks may be supporting oil prices, but that’s likely just short term - JP Morgan

Gasoil News - Published on Wed, 22 May 2019

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Mr Scott Darling, JP Morgan’s head of Asia Pacific oil and gas research, said that oil prices jumped on Monday after Saudi Arabia indicated a possible rollover of output curbs amid political supply risks, but that support is likely to be short-lived due to fundamental changes in the energy industry. It’s alright to talk about supply-side risks, but that’s sort of near-term. I don’t think expectations for oil prices have actually gone up.

Mr Darling told CNBC’s “Squawk Box.” JP Morgan expects OPEC to extend its oil output cuts to 2020, that’s because of the rise of US shale energy and slowing demand due to global economic uncertainties. Oil prices jumped on Monday after Saudi Energy Minister Mr Khalid al-Falih indicated there was a consensus among OPEC and allied oil producers to continue limiting supply.

Mr Falih said the main option discussed at a ministerial panel meeting during the day was for a rollover of the output curbs agreed by OPEC and non-members in the second half of 2019. Still, he said, “things can change by June.”

OPEC, Russia and other non-member producers, an alliance known as OPEC+, agreed to reduce output by 1.2 million barrels per day from Jan. 1 for six months, a deal designed to stop inventories building up and weakening prices. Brent crude futures were at USD 73.23 a barrel at 12:06 p.m. HK/SIN, up USD 1.02, or 1.4%, from their last close. Brent closed down 0.6% on Friday.

Mr Darling said that JP Morgan’s forecast for Brent crude is USD 75 per barrel by the end of the second quarter of 2019. For the full year, however, Brent crude will average USD 71 a barrel for 2019 and will weaken to USD 60 a barrel from 2021.

Darling’s comments come as the market expects Iranian oil exports to drop further in May and Venezuelan shipments could fall again in coming weeks due to US sanctions.

Moreover, tensions between Saudi Arabia and Iran are running high after last week’s apparent attacks on two Saudi oil tankers off the UAE coast and another on Saudi oil facilities inside the kingdom.

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Posted By : Rabi Wangkhem on Wed, 22 May 2019
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