Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: Global Oil Inventories Keep Falling - Raising 2018, 2019, and Long-Term Price Forecast
April 23, 2018

Our global oil supply/demand model has increasingly pointed to the need for oil prices to move higher in order to avoid a starkly undersupplied oil market in late 2018 and 2019. Even when making some deliberately conservative (bearish) assumptions, our latest model indicates that global inventories will draw by a massive 800,000 bpd in 2018 (even with strong U.S. supply growth and high-$60s oil prices).

After a strong start to the year in oil prices (and a much more bullish than consensus view on oil prices for the last few years), we are now raising our full-year 2018 forecast by $3/Bbl, to $68/Bbl WTI and $73/Bbl Brent. With the current abnormally high level of inventory draws, OECD inventories are set to fall to 27 days of consumption (10% below the long-term average) by the end of 2018, and they should remain below normal through 2020. Based on this, we are raising our 2019 forecast by $10, to $70 WTI and $75 Brent. Over a long-term timeframe (2020+), we now believe that rising base declines across U.S. resource plays will result in a slowdown in U.S. supply growth even if oil prices remain in the $65 range. Due to this, we are raising our long-term forecast by $5, to $65 WTI and $70 Brent, and maintain an upward bias to even this higher forecast.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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