Nomura raises Brent crude oil forecasts amid Venezuela, Iran supply declines

U.S. two-dollar billsPhoto by Leslie Shaffer

Nomura raised its Brent crude oil forecast to US$70 a barrel from US$65 for 2018-19, pointing to risks of supply declines amid a healthy demand outlook.

It pointed to three factors for raising its forecast:

  1. Production decline risk from Venezuela and Iran
  2. Tighter supply amid minimal production increases from the U.S., OPEC or Russia in the near term
  3. Low inventory levels

Nomura said it saw few reasons for the largest oil producing countries — the U.S., Saudi Arabia and Russia — to increase output beyond implied demand levels.

“Any output increase should be at a level where it would ‘cover’ the potential rise in oil price lest there is supply shortage, in our view,” it said in a note on Wednesday.

While U.S. shale has the most room for a production increase, it may not fully compensate for the potential production declines in Iran and Venezuela in the near term, Nomura said.

“The U.S. refineries do not have much room to intake more light crude from the shale regions and loading ports are congested amidst limited new pipeline project startup until 2019, according to IEA,” Nomura said. “Developers are apparently not completing wells as fast,
as the commercialisation of new supplies does not seem economical at this stage.”

ICE Brent crude oil futures for August were up 0.17 percent at US$75.21 a barrel at 10:46 P.M. SGT on Wednesday, according to Bloomberg data.