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JP Morgan: If OPEC doesn't maintain its cuts, oil could stay lower for longer

Key Points
  • If the Organization of the Petroleum Exporting Countries (OPEC) does not follow through with its commitment to reduce oil production throughout this year, Brent crude prices could struggle to find support, J.P. Morgan's head of Asia Pacific oil and gas, Scott Darling, said.
  • In an early December meeting, OPEC and non-OPEC countries agreed to take about 1.2 million barrels a day off the oil market — initially for six months — starting January.
  • If that commitment does not extend throughout the year, Brent prices could hover around the investment bank's "low oil price scenario," which is around $55 per barrel for 2019, according to Darling.

If the Organization of the Petroleum Exporting Countries (OPEC) does not follow through with its commitment to reduce oil production throughout this year, Brent crude prices could struggle to rise, according to J.P. Morgan's head of Asia Pacific oil and gas.

In an early December meeting, OPEC and non-OPEC countries agreed to take about 1.2 million barrels a day off the oil market — initially for six months — starting January, amid a persistent imbalance between global oil supply and demand.

"Well, J.P. Morgan said prior to the OPEC meeting early December, that if OPEC didn't really cut by more than around 1.2 million barrels per day, and they did just for the first half, (not) for the full year, that we could gravitate toward ... our low-oil-price scenario, which is $55 Brent for 2019," Scott Darling told CNBC's "Squawk Box" on Wednesday.

On Wednesday afternoon during Asian hours, Brent traded down around 1 percent at $53.28.

Saudi Arabia's Oil Minister Khalid al-Falih listens during a news conference after an OPEC meeting in Vienna, Austria, November 30, 2017.
Heinz-Peter Bader | Reuters

Darling said factors that could keep oil prices weak in 2019 include sluggish demand for crude and the uncertainty over full compliance from OPEC members, including the largest producer Saudi Arabia, over the agreed 1.2 million barrels per day supply reduction.

In recent months, the Saudis increased production by more than 1 million barrels per day. Now, the kingdom will aim to cut about 900,000 barrels per day in just two months. With oil prices struggling, some have said the kingdom needs Brent crude to rise significantly to balance its budget.

Last year, oil prices suffered their worst annual loss since 2015 — Brent fell around nearly 20 percent while U.S. crude suffered a roughly 25-percent decline as stock market volatility, geopolitics and softening demand predictions roiled the energy market.

For his part, Darling said geopolitical risks in places such as Venezuela could also push oil prices up.

"In some parts of the world, you've still got aging oil infrastructure, which leads to unplanned maintenance. It only takes a few of these events and you suddenly get more support to the oil price," he added.

J.P. Morgan said in November that Brent crude prices will average $73 a barrel in 2019, down from an earlier prediction of $83.50, in part due to North American supply ramping up in the second of the year.

— CNBC's Tan Huileng and Tom DiChristopher contributed to this report.