Markets should expect oil to hover around $55 in 2017-2018, according to the International Monetary Fund’s World Economic Outlook, released on Tuesday.
Last year’s average barrel price was $42.84 per barrel, the report said, but this year the average should rise to $55.23. The 2018 price will be slightly lower, at $55.06 a barrel.
“Despite uncertainty about technological improvements and the recent OPEC agreement, rebalancing oil supply in line with demand accompanied by stable prices, will hinge on the prospects for unconventional sources,” the IMF said in the document.
The Organization of Petroleum Exporting Countries (OPEC) agreed to cut output by 1.2 million barrels in late November. The bloc is currently in the process of determining whether or not to extend the cuts, which would contribute to further market rebalancing. Eleven non-OPEC countries also participated in the cuts the first time around, and are expected to participate in the extension.
Regarding new technical capabilities in the oil and gas sector, the international financier said “annual oil demand growth, commonly projected at about 1.2 mbd, will be met by unconventional sources over the next few years, mainly through resources under development for deepwater and ultradeepwater oil, oil sands, and heavy and extra heavy oil.”
The report also acknowledged the effect of rising shale oil production from the United States since oil prices began their recovery this year.
“In the new normal for the oil market, shale oil production will be further stimulated by a moderate price increase,” the report said. “As a result, supply from shale will help somewhat tame the otherwise sharp upward swing in oil prices. Over the medium term, as prices increase further, technical improvements in unconventional oil recovery will be reactivated, which will eventually set off another price cycle.”
By Zainab Calcuttawala for Oilprice.com
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