Analysts polled by Reuters expect higher oil prices this year, confident that OPEC and Russian cuts will offset growing U.S. production. Brent crude, analysts expect, will now average US$63 a barrel, versus US$62.37 projected in an earlier poll conducted in January.
One of the analysts polled noted that volatility will also increase as everyone keeps a close eye on U.S. production, which the EIA said it expected to pass the 11-million-bpd threshold by next year.
Caitlin Birch from the Economist Intelligence Unit told Reuters, "That its [the U.S.] oil market is dominated by a large number of uncoordinated, private-sector firms, many of whom benefit from lower production costs than producers elsewhere, means the U.S. will remain a major player for the foreseeable future."
Earlier this week, the UAE's Energy Minister Suhail Al Mazrouei told Bloomberg that OPEC and Russia had exceeded market expectations with their oil production cuts. He's right, of course, as the market did not expect the cartel and its partners to stick to their 2016 deal based on historical evidence.
Yet Al Mazrouei also said he expected the adherence to the production cuts to continue this year, causing the oversupply to disappear later this year. This is the opposite of what the OPEC pack leader, Saudi Arabia, expects. In comments made last weekend, Khalid al-Falih said he expected the oil inventory overhang to persist until 2019. Related: Crucial U.S. Pipeline In Legal Limbo
Despite the steadfast compliance by the largest producers, doubts linger as to whether the deal will survive until its December 2018 deadline. "The supply deal remains a key uncertainty for the oil market. A transition of the deal is needed but not yet visible, with both an over-tightening and an orderly unwinding being potential scenarios," Julius Baer's head of commodity research, Norbert Rucker, told Reuters.
Other analysts are being more cautious, ready for both a fall and a rise in prices. Saxo Bank's Ole Hansen, for example, expects Brent to stay range-bound between US$55 and US$70 a barrel. Too high prices, Hansen said, will dampen demand, while too low would hamper production growth in the United States.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Furthermore, the OPEC/non-OPEC production cut agreement not only will survive 2018 but will go beyond it in a format that will reflect changing conditions in the global oil market. Cooperation between OPEC and Russia will be enshrined in a new pact which could go well into the future. I go as far to say that we could see the emergence of a “Super OPEC” with Russia a member in all but name.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London