We expect the post-OPEC $50/bbl (Brent) floor to hold as the market receives confirmation of Q1-19 supply
reduction. By the end of Q1 we would expect to see risks balanced around the Brent USD 63/bbl level.
Reasons for a more positive bias are: (i) confirmation of OPEC+ co-ordinated supply reduction, (ii)
reassurance that global economic growth remains healthy, and (iii) indication that the US will seek to
further tighten compliance with Iran sanctions through reduced quotas in May.The Dec-Jan v-shaped oil
price dip was more correlated with equity jitters than the preceding decline, which was arguably more
fundamentally entwined with the OPEC supply ramp-up. With Brent back at USD 60/bbl and equity prices
consolidating, the oil market can arguably retreat to lower levels of equity correlation. Weaker European
demand, however, may mean limited upside from here. Eurozone manufacturing PMI leads OECD European total
products demand and implies a weaker 2019 profile. We lower our European demand growth forecast
accordingly from +122 kb/d to -130 kb/d, with risk for a decline of as much as -240 kb/d (-1.7%) for OECD
Europe.Global oil demand growth is lowered to +1.15 mmb/d as a result, but even so, we expect oversupply
fears will prove overdone. OPEC-15 supply should fall an additional ~900 kb/d in Q1, after a drop of 500
kb/d in December, before including any cuts from non-OPEC partners. We see 2019 fundamentals near neutral
at -168 kb/d deficit, signaling a meaningful improvement from OPEC-induced surpluses in H2-18, and
implying prices back near equilibrium of USD 65/bbl Brent by year-end.There are few upcoming milestones
apart from the expected OPEC statement about implementation details and confirming country-level
commitments. An April OPEC+ agreement to extend discipline appears likely. Further out, we would look for
support from a possible moderation in US tight oil investment, helped by rising costs since 2017.We
expect that the late 2018 rise in OECD inventories from 60 to 61 days will be contained below 61 in 2019.
This is midway between the 2010-14 average of 57.8, and the 2016 average of 65.2, and implies prices in
2019 will not exhibit a more significant or protracted decline.This relatively uneventful outlook raises
the question, What could possibly go wrong? US supply growth could outperform expectations again, which
seems more likely than underperformance given the near-doubling of Permian uncompleted wells in a year's
time. OPEC+ compliance could fade, or it may relax supply discipline in April when it meets to reconsider
its strategy. A further weakening of global growth momentum could lead to more severe downgrades to
demand. If most of these risks are to the downside, it may be the lens of recent experience that lends a
bias to our outlook.
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