Brent crude, the global oil benchmark, is now expected to average $76.98 a barrel next year, down from prior forecasts of $77.58, according to a poll of 11 investment banks by The Wall Street Journal. Expected prices for West Texas Intermediate, the U.S. standard, experienced a bigger drop, to $69.98 a barrel in 2019 from earlier forecasts of $70.81.
The latest poll results come just a month after banks had raised forecasts for crude prices on expectations that reimposed U.S. sanctions on Iran’s oil industry starting in November would significantly reduce global supplies, tightening the market.
But supply outages from Iran have so far proved less consequential than feared, in part because the Trump administration decided to grant temporary waivers to the world’s main buyers of Iranian crude.
At the same time, crude output has risen to record levels from the world’s largest producers—the U.S., Russia and Saudi Arabia—triggering a massive selloff that has plunged both crude benchmarks into bear territory and brought them to their lowest levels in over a year.
Brent and WTI have each lost more than 30% since climbing to four-year highs at the start of October. On Thursday, Brent was trading at $59.90 a barrel, while WTI was trading at $51.53 a barrel.
“The negative price reaction is as severe as the 2008 financial crisis and the aftermath of the November 2015 OPEC meeting, when the group decided not to act in the face of a very oversupplied market,” said Jason Gammel, oil analyst at Jefferies. But he added that the “oil price rout has been driven by accelerating oversupply, which should moderate over the coming months as Iranian exports drop and Saudi production moderates.”
The Organization of the Petroleum Exporting Countries, de facto led by Saudi Arabia, and its allies outside the cartel, led by Russia, are facing growing pressure to engineer a new agreement to curb output to rebalance the market and bolster prices. The group is set to convene in Vienna next week.
Saudi Arabia said earlier this month it would cut exports by 500,000 barrels a day in December. But it is uncertain whether Saudi Arabia will significantly reduce production in coordination with its partners while the Trump administration pressures the kingdom to keep output high and prices low.
There is also a lack of clarity from Russia—currently the world’s largest producer of crude—which has alternately signaled willingness to cut output while indicating it is content with crude price around $60 a barrel.
Still, Martijn Rats, an oil analyst at Morgan Stanley, predicts OPEC will likely reach an agreement to cut production and “manage the market in 2019.” In that case, “Brent prices are likely to recover into the $70s,” he said.
OPEC and 10 producers outside the cartel, including Russia, agreed in late June to begin gradually ramping up production after more than a year of holding back output. The group had agreed in late 2016 to implement coordinated cuts to rein in a supply glut that had weighed on prices since the oil price crash of 2014.
The initial deal had helped to bolster crude prices by more than 50% since the start of last year, until the recent selloff wiped away many of those gains.