BofA-ML sees Brent at $70 in 2019, but says global recession could result in $35

There are risks, but analysts at Bank of America-Merrill Lynch on Friday reiterated their forecast for an average price of Brent crude oil in 2019 of $70 a barrel, pointing to a combination of potentially supportive factors, including a weaker US dollar, and the then current 'bearish' investor set-up.

In a nutshell, and unlike some other forecasters, the investment bank's global commodities strategy team, led by Francisco Blanch, believed that a slight deficit in global oil supplies would materialise over the course of 2019.

"Assuming our projections of a slight deficit in the global oil market in 2019 materialize, Brent crude oil should revert into backwardation. In short, we retain our constructive view of oil prices this year partly because the "Saudi [supply] put" has already been triggered and we believe the "Powell [demand] put" is in the horizon," they said.

On the demand side of the equation, they continued to project an increase in the global appetite for oil of 1.2m barrels per day over the next 12 months, with expectations for slightly weaker economic growth offset by cheaper petroleum products.

Supplies from OPEC+ producers meanwhile were set to shrink by 2.6m b/d between the last quarter of 2018 and 2019, with the market having been in a surplus of 1.3m b/d over the fourth quarter of last year, as Saudi, the United Arab Emirates, Russia and the US all ramped-up output at the tail-end of 2018.

On average, supplies from OPEC+ would fall by 1.6m b/d between 2018 and 2019, they went on to explain, with total global supplies seen higher by 400,000 b/d and with a deficit building going into the summer in the northern hemisphere.

Iran was set to struggle with fewer export waivers and US output growth was set to slow in 2019 on the heels of the lower starting prices.

The other missing ingredients were a weaker Greenback and a risk-on rally - premised on an eventual shift in the Federal Reserve's tightening path in coming months - which might result "in a major uplift in inflation assets like oil into the summer", they explained.

Nevertheless, they conceded that there were downside risks, saying that Brent could fall to $35 a barrel if global GDP growth in 2019 slowed to 2.0%, instead of printing at 3.5% and if oil stockpiles in OECD countries remained near their five-year average.