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Top Investment Banks Staying Cautious on Oil: Your Move?


Nov. 20 2020, Updated 10:49 a.m. ET

Top investment bank staying cautious on oil

According to J.P. Morgan (JPM), Brent crude oil might average $10.5 per barrel less than its earlier forecast of $83.50 per barrel in 2019. Brent crude oil might fall to an average $64 per barrel in 2020. Goldman Sachs (GS) had said that it expects high volatility in oil prices in the coming weeks—based on its note on November 21. In 2018 so far, Brent crude oil active futures averaged around $73.21 per barrel.

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Your move?

The OPEC meeting scheduled on December 6 should provide an important road map to oil prices. Earlier, the news about OPEC and non-OPEC oil producers’ plan for a production cut up to 1.4 MMbpd (million barrels per day) in 2019 on November 14 had supported US crude oil futures. In its “Oil Market Report” on November 14, the International Energy Agency explained that it expects global oil demand growth to rise by 1.3 MMbpd and 1.4 MMbpd in 2018 and 2019, respectively. A production cut of that magnitude might boost oil prices.

Moreover, investors can’t ignore the risk from the US oil industry. Oil production was at a record level of 11.7 MMbpd in the week ending November 16. The oil rig count has also been rising in recent weeks.

US crude oil prices

On November 21, US crude oil January futures rose 2.2% and settled at $54.63 per barrel—the second-lowest closing level for active US crude oil futures in 2018. On November 22, US markets were closed on account of Thanksgiving. However, Brent crude oil active futures fell 1.4%.

In the trailing week, US crude oil prices fell 3.6%. The Energy Select Sector SPDR ETF (XLE) rose 1.6% on November 21. The S&P 500 Index (SPY) rose 0.3% while the Dow Jones Industrial Average Index (DIA) was unchanged on November 21. In Part 3 of this series, we’ll analyze US crude oil’s relationship with these equity indexes. Integrated energy stocks like ExxonMobil (XOM) and Chevron (CVX) are also sensitive to oil prices.


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