Macquarie cuts Brent price forecasts, says OPEC has few options

Macquarie slashed its forecasts for the average price of Brent, predicting that too much oil will be produced, loaded and marketed around the world until 2020.

The group issued new targets for Brent prices of $54.15 in the second half of 17 and $49.33 and $52.75 in 2018 and 2019, respectively.

It attributed its reduced forecasts to productivity gains in tight oil, greater shale resource prospectivity and falling break-evens globally.

Analysts at the Australian broker predicted stockpile draws would reach roughly 600,000 barrels per day in the second half of 2017, but said surpluses in the range of 1.4m barrels a day would return in the second and third quarter of 2018 - assuming OPEC's output cuts expired as expected next March.

Those surpluses would be higher still should WTI hold its head above $50 in the backhalf of the current year.

"Our base case assumes OPEC returns to normal production in 2Q18. We believe the market is crushing oil prices now to prevent 2+ M BPD surpluses in 2018," Macquarie said.

The broker also stressed that demand was not the problem and was not expected to be for at least five years, except for recessionary periods. Their model pointed to demand growth of 1.3m, 1.4m and 1.4m b/d for 2017, 2018 and 2019, respectvely.

Nonetheless, the team at Macquarie believed OPEC had few options at its disposal to remedy the situation.

"We believe OPEC has few options. Option 1 is to maintain cuts through 2019 and allow time for demand to grow and easy growth to slow; option 2 is stop the cuts immediately. The current strategy is probably the worst. The reality is even the most optimal of OPEC’s potential strategies probably will not work."