Expectations that the oil market will swing into deficit in July prompted HSBC to revise up its oil price forecasts for this year, with the U.S. benchmark WTI Crude projected to average $34.60 a barrel.
The previous forecast by HSBC Global Research was $32.80 per barrel. The bank also increased its forecast for the average Brent Crude price in 2020 to $39 a barrel from $37 previously expected, due to the record production cuts that are set to flip the market into deficit next month.
“We see the market almost back in balance in June, and moving into deficit in July,” HSBC said on Monday.
The oil market is set for a deficit from August onwards, even after OPEC+ eases the current cuts, Rystad Energy analysts said on Friday. The market deficit coming this summer, however, doesn’t mean that there will be a global oil supply crunch, because inventories and floating storage have yet to begin depleting.
Despite the record cuts from the OPEC+ group and economics-driven production curtailments in North America, the trend in oil prices is still uncertain because the recovery path of global oil demand is still highly uncertain, according to the bank.
“We think this uncertainty is behind the latest push from OPEC+; its goal of eliminating the market surplus is in sight, but the precise timing is not yet clear,” HSBC Global Research said, as quoted by Reuters.
OPEC+ agreed on Saturday to extend the record productions cuts of 9.7 million bpd by one month through the end of July, contingent on all countries in the pact complying 100 percent with their quotas and compensating for lack of compliance by over-achieving in the cuts in July, August, and September.
Early on Monday, oil prices were down at 8:40 a.m. EDT, with WTI Crude trading at $39.15, down by 1.09 on the day, and Brent Crude down 0.35 percent at $42.17, as the OPEC+ extension was largely priced in in Friday’s market rally and as Libya confirmed the restart of its largest oilfield following six months of blockades.