Brent remained at over US$60 a barrel today, with WTI a bit over US$54 a barrel, but prices have begun to drag because of the prospect of further increases in U.S. shale production.
Reuters quoted analysts as saying that the dominant factor driving market sentiment right now is OPEC’s determination to stick to the production cuts it agreed with Russia and 10 other producers last year. One analyst even cautioned that “The fear of oversupply could easily turn to a fear of undersupply if inventories keep declining like they have been and demand continues to grow.”
According to oil analyst Vandana Hari of Vanda Insights, however, there are two more factors at play here: the escalation between the central government of Iraq and the Kurdistan autonomous region, and the conviction that although U.S. shale production is recovering, it will not rebound this year, as more E&Ps in the sector switch from a growth-at-any-cost approach to a focus on higher returns.
While these and more headwinds remain, including oil production in Libya and Nigeria, and the always-present possibility that an OPEC member or two or three will cheat as they have been doing already, most analysts share the bullish sentiment and have started raising their price outlooks for 2018.
Analysts at Jefferies see WTI at US$55 per barrel by the end of 2018, with Brent at US$58. Bank of America Merrill Lynch raised its WTI and Brent projections for the short term, seeing Brent prices averaging US$54 in Q4 2017 and US$52.50 in the first half of 2018, up from the previous estimates of US$50 and US$49.50, respectively. BofA Merrill Lynch also revised up its WTI price forecast to US$49 this quarter, compared to the previous US$47 estimate.
RBC Capital Markets also raised its oil prices forecasts for next year; WTI is now seen averaging US$51 next year, up from the previous US$50 a barrel forecast, while the Brent price view was raised to US$55 from US$53.19.
By Irina Slav for Oilprice.com
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