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Scotiabank Sees Oil Prices Stuck to Upper End of $50 to $60 Range as Output Set to Hold Steady

2:09 PM, Mar 29, 2019 — Trends in oil supplies are expected to keep prices for West Texas Intermediate “tethered to the upper end” of a $50 to $60 a barrel shale band, according to Scotiabank Economics.

The most recent production cuts by the Organization of the Petroleum Exporting Countries plus non-OPEC nations have been in place for three months, Rory Johnston, a commodity economist with the bank, said in a note. That’s been supporting WTI price gains of about $5 a barrel in the month to about $60, prompting President Trump to remind producers that supply should be kept loose, he said.

“While the president’s tweet knocked WTI back by a dollar or two intraday, we expect that OPEC+ will stay the course and crude prices will average around current levels through the remainder of the year,” Johnston said. WTI was trading at $60.12 a barrel Friday.

OPEC cancelled a meeting planned for April, “effectively extending the organization’s supply cuts through at least June when the next meeting is scheduled,” he said. “We expect OPEC+ to maintain production discipline and supply risks across the producer group appear tilted to the bullish side, though the market seems unwilling to let prices drift far above $60” a barrel.

Western Canadian Select has performed better than the major global benchmarks, holding a discount to WTI through March of just more than $10 a barrel. That’s a level lower than Scotiabank believes is needed to incentivize growth in oil-by-rail capacity.

Johnston said Asian liquefied natural gas prices prices tumbled in March amid weather in China, Japan and South Korea that was warmer than usual for winter. The market for iron ore has rallied as production uncertainty followed the fatal Vale (VALE) tailings dam collapse in Brazil in January disruptions from a cyclone that impacted ports in western Australia.

Scotiabank lifted its iron-ore price forecast to $76 a tonne in 2019 and $71 in 2020, the economist said.

“Currently-high prices are expected to bring previously idled Chinese mine supply back to the market, while seaborne demand for ore is also forecast to rise over the coming months as Chinese building activity revs out of its annual Lunar New Year lull and environmental winter production curtailments end in April,” Johnston said.

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