Oil prices were up early on Tuesday, supported by a brighter outlook on the global economy for this year and next, as well as the continued high compliance of OPEC and allies with their joint oil production cuts.
In its World Economic Outlook Update, the International Monetary Fund (IMF) revised up on Monday its projections for global growth by 0.2 percentage point to 3.9 percent for 2018 and 2019, reflecting increased global growth momentum and the expected impact of the U.S. tax policy overhaul. Last year, global economic activity continued to firm up, and global growth is forecast to have been 3.7 percent, up 0.1 percentage point compared to the previous outlook. Notable upside surprises in European and Asian economies further strengthened the overall global economy, the IMF said.
“Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010,” the IMF said, noting that improving global growth outlook was one of the main reasons for the higher oil prices at the end of last year and early this year. Related: Will This Cause An Oil Price Reversal?
While global economic growth and expectations of robust global oil demand growth are pushing oil prices higher on the demand side, from the supply side, OPEC and its non-OPEC allies led by Russia continue to tighten the market by restricting oil production. Over the weekend, the Saudi and Russian energy ministers reiterated their commitment to the cuts, and Saudi Arabia’s Khalid al-Falih went further, suggesting that the cartel and its non-OPEC partners need to be talking about a longer framework for that cooperation.
“The outlook for 2018 is roughly balanced for most of the year, but inventories are set to rise in Q4 2018,” BNP Paribas told Reuters, commenting on the global oil inventories picture for this year.
The French bank raised its oil price forecasts for this year by $10, and now sees WTI averaging $60, with Brent averaging $65 in 2018.
Barclays, for its part, revised up its Brent forecast too, by $5 to $60, citing strong oil demand growth and crumbling production from Venezuela.
The possible headwinds to a further increase in oil prices include rising U.S. oil production, weakening refining margins across the world that could slacken refinery purchases, and money managers’ very crowded record net long position in the most important futures and options linked to crude oil.
By Tsvetana Paraskova for Oilprice.com
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