Prices on Brent Oil, Crude Oil and major oil products have dropped to multi-year low levels following a growth slowdown in China, a surge in the US dollar and a further rise in global oil output.
The market now awaits a response from OPEC and most notably Saudi Arabia, which has some room to cut production. A notable downside tail risk to oil prices is that Saudi Arabia will maintain a high production level, amid other OPEC members raising output and thus allow a repeat of the 1986 oil glut.
Our base case is that prices have bottomed now and we forecast Brent crude oil at USD98/bbl, jet fuel at USD902/bbl, ULSD 10ppm at USD850/bbl, 1.0% fuel oil at USD535/bbl and 3.5% fuel oil at USD511/bbl on average next year on higher global growth, the dollar peaking and lower output target from OPEC.
Our forecasts are slightly above the prices in the forward market and, therefore, we recommend clients on the consumer side to hedge their exposure at the current low levels.
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