KUALA LUMPUR: Global oil prices are expected to remain bearish in the first-half of the year before rebounding slightly in the next six months, OCBC Bank said.
This would be due to on-going uncertainties trade tension, US government shutdown and no-deal Brexit.
OCBC, in its latest commodities outlook report, noted that the global uncertainties and geopolitical risks were weighing heavily on the market, while expecting soft demand and oversupply for oil this year.
“The global economic slowdown is also expected to dampen energy demand. On the supply side, we see numerous difficulties in compliance from the Organisation of the Petroleum Exporting Countries (OPEC) members to the recent production cut, especially Russia as further cuts will be met with resistance,” it said.
The bank added that oil prices could possibly rebound, underpinned by clearer resolutions on the triple threats and global demand-supply dynamics to balance out in the second half.
The bank expects Iranian oil sanction waivers to be extended to five of the existing eight countries after its expiry in May.
“Exit of US troops in Syria, Afghanistan creates internal strife in the Middle East, giving space to extremists to develop new terror strategies – but this remains a remote fat-tail risk.”
Crude oil prices in 2018 fully encapsulated the accumulation of fears over the US-China trade spat and suspicion that the global business cycle had entered its late stage.
“Overall, the fundamentals of the crude market has shifted from one that is oversupplied in the second half of 2018, to a more balanced one in the first half of 2019 – assuming OPEC members keep to its supply cuts,” OCBC said.
The bank, however, said with demand softening and a history of non-compliance among OPEC members, the market can easily tilt back towards a supply glut.
“We expect more bearish pressures to persist in the short term. There remains lingering doubt over OPEC members, particularly Russia, to comply with the supply reduction, while the triple threat of US-China trade tensions, US government shutdown and no-deal Brexit present massive fat-tail risks to the energy market.”