Optimism about crude oil demand in the coming weeks has helped prices to recover somewhat, but the sustainability of the improvement is highly uncertain. Bank of America Merrill Lynch is now forecasting robust gasoline demand in the coming weeks, based on weekly data, which “compares favorably to the five-year average and miles driven also continue to grow year-on-year.”
At the same time, however, another bank slashed its oil price forecast for the short term. French BNP Paribas revised its Brent average forecast for this year by US$9 to US$51 a barrel, seeing WTI at US$49, down US$8 from its earlier forecast. The bank is even more pessimistic about next year.
It expects Brent to average US$48 in 2018, down from an earlier estimate of US$63, and sees WTI at US$45, down from an earlier projection of US$61. The revisions suggest the French lender had high hopes for OPEC’s production cut extension, and now that it has failed to push up prices, there doesn’t seem to be a lot of upward potential coming from anywhere else.
BofA added to the gloom by noting in its optimistic gasoline demand forecast that in absolute terms, peak demand may have come and gone last year, which doesn’t bode well for the longer term. Shale oil production is growing, and so is output in Nigeria and Libya, which, according to analysts quoted by Reuters, will in all likelihood continue to pressure prices.
OPEC may later this month ask Nigeria and Libya to put a cap on their production to help with the price recovery efforts, but it is unclear as of yet whether the two exempt OPEC members will be willing to do so. Earlier statements from Libyan and Nigerian oil officials suggest this may not be the case, although there is always the possibility of better oil revenues from higher prices at current production levels.
By Irina Slav for Oilprice.com
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