MULTI-ASSET ● OIL, GAS & CONSUMABLE FUELS
11 September 2018Don’t rule out USD100/b 3
The inventory cushion has gone 14
OPEC’s headroom is limited 19
US tight oil supply: strong
growth despite constraints 28
Conventional output to fall 36
IMO 2020 – more disruption 44
Demand – the relief valve 50
Disclosure appendix 58
Disclaimer 60
ContentsMULTI-ASSET ● OIL, GAS & CONSUMABLE FUELS
11 September 2018
Raising our price assumptions
We are raising our long term Brent price assumption for the first time in fifteen months from its
previous USD70/b. Our new Brent forecasts are:
USD73/b for 2018e, reflecting a USD75/b price in both 3Q and 4Q
A rise to USD80/b in 2019e and USD85/b in 2020e, with a peak in 2020 on IMO 2020-related
market disruption
A reversion to USD75/b thereafter, although risks to this assumption could be to the upside
We assume a US WTI discount to Brent of USD6/b in 2019e, narrowing to USD2/b by
2021e as US domestic logistical constraints are expected to ease
HSBC oil and gas price assumptions
Annual average 2014 2015 2016 2017 2018E 2019E 2020E 2021E
Brent (USD/b) 99.4 53.6 45.1 54.8 73.0 80.0 85.0 75.0
Previous 70.6 70.0 71.4 72.8
Change 2.4 10.0 13.6 2.2
WTI (USD/b) 92.9 48.8 43.4 50.9 67.6 74.0 81.0 73.0
Previous 66.5 68.0 69.4 70.7
Change 1.2 6.0 11.6 2.3
Nymex gas (USD/mcf) 4.34 2.61 2.49 2.96 2.98 3.00 3.25 3.32
Previous 2.98 3.25 3.50 3.57
Change 0.00 -0.25 -0.25 -0.26
UK spot gas (p/th) 50.1 42.7 34.7 45.0 57.4 60.0 65.2 56.3
Previous 52.7 50.0 51.0 52.0
Change 4.8 10.0 14.2 4.2
Quarterly average 1Q19E 2Q19E 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E
Brent 75.0 80.0 80.0 85.0 90.0 85.0 85.0 80.0
Previous 70.0 70.0 70.0 70.0 71.0 72.0 73.0 74.0
Change 5.0 10.0 10.0 15.0 19.0 13.0 12.0 6.0
WTI 69.0 74.0 74.0 79.0 86.0 81.0 81.0 76.0
Nymex gas (USD/mcf) 3.00 3.00 3.00 3.00 3.25 3.25 3.25 3.25
UK spot gas (p/th) 65.0 55.0 55.0 65.0 71.6 61.4 61.4 66.5
Source:Bloomberg, HSBC assumptions
Don’t rule out USD100/b
Crude market risks still look skewed to the upside
USD100/b Brent is not out of the question given the increasing lack
of global spare capacity
Raising Brent price assumptions from USD70/b to USD80/b in ‘19e,
USD85/b in ‘20e and USD75/b for ‘21e and beyond
Brent forecasts of USD80/b in
2019e, USD85/b in 2020e and
USD75/b thereafter
MULTI-ASSET ● OIL, GAS & CONSUMABLE FUELS
11 September 2018The Bloomberg consensus estimate for 2019 has risen sharply, but is still only ~USD72/b.
However, a Dow Jones poll recently pointed to a consensus closer to USD75/b.
Brent crude: Bloomberg consensus for 2018 and 2019, USD/b
Source: Bloomberg
The front end of the Brent futures curve moved back into contango during July and August,
reflecting a much softer physical market.
We think this represented a lull in the market, rather than a fundamental softening of supply/demand
dynamics. In particular, it reflects a combination of two things which occurred over the summer:
A sharp acceleration of supply from Saudi Arabia since before the June OPEC meeting, coupled
with a recovery in Libyan output. This supply increase came several months ahead of a likely
offsetting fall in exports from Iran, where US oil sanctions are due to start in early November.
At the same time, there was a high and prolonged level of refinery outage – and hence
interruption to refinery demand for crude – which resulted from a combination of abnormally
high summer temperatures and low water levels in the Northern Hemisphere. This is now
being followed by the normal late-summer period of refinery maintenance.
Saudi Arabian crude supply has risen by
6% since May (mbd)
Europe/Africa refinery outage has been
heavy this summer (mbd)
Source: IEASource: Bloomberg
However, in the past two weeks the curve has reverted to backwardation as these factors have
begun to unwind – the 1 month/6 month spread is back to around USD1.5/b (below right)
50
55
60
65
70
75
80
85
Jan-15Jan-16Jan-17Jan-18
Brent 18EBrent 19E
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
Jan-10Apr-11Jul-12Oct-13Jan-15Apr-16Jul-17
Saudi Arabia MonthlySaudi Arabia Annual2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Jan-15Aug-15Mar-16Oct-16May-17Dec-17Jul-18
Consensus for 2019 looks
like it’s around USD75/b
July/August lull in price was
due to temporary factors。。。