WTI crude target: US$15.00/barrel in Q2; gradual increase in H2 2020 - Wells Fargo

According to analysts at Wells Fargo, the magnitude of the OPEC+ producer cuts will likely not be enough to remove excess supply from the market. They expect oil prices to remain subdued through the second quarter and gradually increase later in the year. 

Key Quotes: 

“Although OPEC+ producers recently took action to cut production, the magnitude of cuts will likely not be sufficient to remove excess supply from the market.”

“Since mid-April, the price of Brent crude is down over 70%, while the price of WTI is down over 80% and traded negative for the first time in history. The fall in WTI has been remarkable and has created unprecedented dynamics in oil markets. While WTI prices have returned to positive territory, storage capacity constraints in the United States should keep WTI prices restrained for now.”

“Global oil prices are an important influence for our economic and currency forecasts, and as of now, the price of crude appears likely to stay near US$15-20/barrel in Q2, before rising gradually later this year. However, upside and downside scenarios do exist, with risks perhaps tilted toward a slower oil price recovery, or perhaps even further downside.”

“Within the G10 space, Canada and Norway are most at risk from significantly lower oil prices. Both economies are likely to contract significantly, with risks tilted towards deeper annual GDP declines than we forecast. In addition, we expect downward pressure to build on their currencies, and currently expect Canadian dollar and Norwegian krone weakness through the end of Q3.”

“We expect G10 central banks to be more focused on the disinflationary impact of low oil prices, which should see most of those central banks maintain a bias toward policy easing over the weeks and months ahead.”