January 02, 2020: Oil prices have peaked
Following the December 18, 2019 Market Minute titled "Are oil prices at a crest?" oil prices (WTI and Brent) are both finding increasing selling pressure as they moved to the top of their trading range.
Light crude oil found solid selling pressure around $62 and Brent at about $67 (Charts 1 & 2).
These price levels were still 24 and 35 percent higher than the levels reported in late 2018.
Adding evidence of lower oil prices, gasoline prices have also crested at just under $1.77 with lower levels projected in the 1st quarter (Chart 3).
The changes in production from the major world suppliers should keep oil prices in a shallow decline as early 2020 unfolds.
OPEC and the Middle East have both indicated that they are open to increased production cuts, however, the U.S., Brazil and China will likely offset any global reduction with higher oil production in Q1.
This balancing of supply is against a backdrop of slowing global growth, even if an a agreement to de-escalate the trade war between the U.S. and China develops, world demand for oil is expected to be sluggish this year.
Bottom line: We do not expect any significant changes to oil prices in early 2020. Models point to $55 per barrel for WTI in early 2020, down from the 2019 average of $58 while Brent spot prices are seen at $61 to $60 per barrel verses the 2019 average of $65.