Bank of America sees oil gains in 2019, but that forecast is far from universal

  • A year ahead outlook report from Bank of America Merrill Lynch expects Brent crude to regain its recent losses in 2019 and settle at $70 a barrel.
  • But amid mounting global uncertainty on everything from trade and monetary policy to politics, that forecast is far from consensus.
  • After a dramatic summit of OPEC and non-OPEC members over the weekend that triggered an immediate boost in oil prices, the commodity has already dropped back to pre-meeting levels, falling 3.1 percent by the end of Monday.

Despite dramatic slides in the oil market, some forecasters remain positive on prices and demand going into 2019. A year ahead outlook report from Bank of America Merrill Lynch expects Brent crude to regain its recent losses in 2019 and settle at $70 a barrel. But amid mounting global uncertainty on everything from trade and monetary policy to politics, that forecast is far from consensus.

"Volatility will be high in the near future, but going into 2019, we are constructive on oil prices," Hootan Yazhari, head of global frontier markets equity research at Bank of America Merrill Lynch, told CNBC's Dan Murphy on Tuesday.

"We believe oil prices will resume their path back up to $70 average next year, potentially higher in the second quarter for a brief spell of time. We believe the (OPEC) cuts were sufficient," Yazhari said, predicting a "relatively balanced oil market" and stable inventories next year.

But worries over the strength of crude remain rife, with other market analysts pointing to $60 barrels or lower in the coming year. Brent crude is down nearly 30 percent from its October highs of more than $86.

After a dramatic summit of OPEC and non-OPEC members over the weekend that triggered an immediate boost in oil prices, the commodity has already dropped back to pre-meeting levels, falling 3.1 percent by the end of Monday. The 15-member cartel, led by Saudi Arabia, agreed with Russia to cut production by 1.2 million barrels per day (bpd) by January to support prices amid a global supply glut and fears of waning demand.

OPEC cuts: sufficient or not?

Monday's price dip tells us two things, says PVM Oil Associates in London: "Either the 1.2 million bpd reduction in the production of the OPEC+ group is not deemed sufficient by the market, or there are other bearish factors at work."

It's likely the combination of the two that prompted selling — not least concerns over growth stemming from the U.S.-China trade war, political uncertainty over the U.K.'s Brexit procedure, and record production of U.S. shale oil. According to PVM, investors have pulled nearly $50 billion out of the two major crude oil futures contracts since the latest rout started in October.

In addition to American shale producers firing on all cylinders, the impact of higher inventories in countries like Iraq and Brazil on market fundamentals is something the Saudi-Russia cut may not be able to fully counter.

Oil field workers tend to a pump jack.
Ken Cedeno | Corbis News | Getty Images
Oil field workers tend to a pump jack.

Citi, meanwhile, sees oil going nowhere in 2019 and staying at $60 a barrel. OPEC's cuts, the bank said, may in fact have been counterproductive, only encouraging U.S. shale producers to pump more.

"The more OPEC+ tries to support prices by withholding oil from the market, the more they give the U.S. shale sector an out from rationing supply growth themselves," Citi said in a research note written by a team led by Ed Morse, the firm's global head of commodities.

Markets 'getting scared'

U.S. based Capital Economics, meanwhile, sees an average of $63 a barrel over the course of 2019. But some remain bullish yet — Japan's MUFG views Brent and U.S. West Texas Intermediate (WTI) to be "oversold," predicting a "sharp rebound" in coming months, while Societe Generale forecasts Brent at $73 for both 2018 and 2019. Richard Robinson, manager of Ashburton Global Energy Fund, believes the current dip is "transient" and that oil will recover to between $70 and $80 in the next three months, he wrote in a note earlier this month.

BAML's forecast is supported by its outlook for global demand, which it expects to grow by 1.3 million bpd, consistent with above trend global gross domestic product growth of 3.6 percent. But Goldman Sachs has a much darker forecast, expecting the U.S. to slow down to less than 2 percent by the end of next year, one of its senior strategists told CNBC on Monday. "As a result of that you could see the market getting quite scared," the strategist said.

But as we go through seasonal demand peaks and the Iran sanctions waivers issued by Washington to 8 major oil-importing countries come off, "we will start to see the market tightening up," Yazhari said, noting that the market has not felt the full impacts of those sanctions yet, designed to cripple the energy sector of OPEC's third-largest producer.

"There are a number of factors to suggest the cuts were deep enough, that we will start to see a resumption to the upside in oil prices, but certainly we don't see oil prices moving up to the $90, $100 level that maybe we could've seen," the analyst said, adding, "We think that the only certainty is uncertainty at the moment."

Brent crude was trading at $60.35, up .38 percent on the previous day, at 1 p.m. London time. WTI was at $51.55, up roughly half a percent.

CNBC's Tom DiChristopher contributed to this report.