Crude oil undersupply likely in H2 2019: report

The crude Oil market will likely be undersupplied in the second half of this year, creating opportunities for investors, said the latest report by global wealth management and investment banking company Stifel.

"We are cautiously optimistic in 2019 as the supply side is set to moderate, potentially creating an undersupplied liquids environment," said the report.

Analysts at the institution mainly attributed their optimism to continued signs that the Organization of Petroleum Exporting Countries (OPEC) and other major Oil producers are committed to cutting outputs.

"(Our chart) suggests that they are not fighting for market share ... they really are sincere about trying to rebalance the market," Michael Scialla, analyst and managing director at Stifel, told Xinhua on Tuesday.

Last December, OPEC and other major Oil producers, including Russia, pledged to cut production by 1.2 million barrels per day (bpd) in order to prop up prices, effective from this January.

Saudi Oil minister Khalid al-Falih. /VCG Photo

Saudi energy minister said on Sunday that it would still take some time for OPEC and its allies to decide whether to change their current output reduction deal and there's little possibility to end the deal before June.

"It looks like it's about half million barrels per day or less oversupplied right now. They can cut that much and have committed to cut more than that much out of the market," said Scialla.

Meanwhile, he noted that a potential global economic slowdown may impact the demand, which is "a big headwind" for the energy market.

As of year-end 2018, the energy weighting in the SP dropped to roughly six percent versus a 25-year average of 9.2 percent, according to the report. Energy has underperformed the SP in four of the last five years.

Analysts at Stifel said they are bullish about the outlook, saying that the "current weighting appears to be unsustainable."

The report forecasts the long-term WTI (West Texas Intermediate) crude Oil price at 60 U.S. dollars a barrel.

Oil prices rose on Tuesday, with the West Texas Intermediate for April delivery up 0.08 U.S. dollar to settle at 56.87 dollars a barrel on the New York Mercantile Exchange, while Brent crude for May delivery up 0.09 dollar to close at 66.67 dollars a barrel on the London ICE Futures Exchange.

The recent gains in the Oil market were mainly supported by the ongoing global supply cuts.

Saudi Arabia's continued output discipline and Venezuela's struggles under U.S. sanctions led crude Oil production in OPEC lower to 30.80 million bpd in February, according to an SP Global Platts survey released last week. The figure is a 60,000 bpd drop from January and is OPEC's lowest output level since March 2015, said the London-based data provider.