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Moody’s Lifts Oil Price Forecast On Robust Demand Growth

Oil

Moody’s Investors Service raised on Tuesday its price band for crude oil in the medium term to $45-$65 per barrel from $40-$60 a barrel, as continued OPEC cuts and strong global demand growth help excess global inventories to decline.

Still, the rating agency noted that oil prices will likely stay range-bound and possibly volatile as the surge in U.S. shale production will continue to suppress price gains whenever prices rise in the upper half of the $45-$65 price band.  

“Prices in the upper half of the oil price-band will encourage increased supply as US production grows and countries reduce compliance with their production quotas,” Terry Marshall, a Moody’s Senior Vice President, said.

“Nevertheless, even with crude prices at the higher end of the new $45-$65 range in early 2018, we expect prices to stay within this range over the medium term amid better balance between increased production and growth in demand,” Marshall noted.

OPEC’s excellent compliance with the production cut deal and the involuntary massive decline in Venezuela’s production have been helping global inventories to shrink, contributing to higher oil prices, Moody’s noted.

“Despite these various factors helping to boost commodity prices, Moody’s believes prices will remain range-bound, and possibly volatile, amid increases in US shale production; reduced, but still significant, global supplies; and potential noncompliance with agreed production cuts—especially if growth in demand is more tepid,” the rating agency added.

Related: China Now Produces More Oil Abroad Than At Home

At the end of February, 15 investment banks polled by The Wall Street Journal raised their oil price forecasts for a fifth consecutive month, and those banks now expect Brent prices to average $62 a barrel and WTI to average $58 per barrel in 2018.

The Reuters monthly poll in February showed that 37 analysts and economists also lifted a little their oil price forecasts, expecting Brent to average $63 a barrel in 2018, slightly higher than the $62.37 figure from the January poll. WTI is now expected to average $58.88 this year, up from the $58.11 forecast in the previous month’s survey.

By Tsvetana Paraskova for Oilprice.com

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  • John Brown on March 14 2018 said:
    Funny isn't it how the news shows supply is growing fast, especially in the USA, than demand, and the glut of oil in the world is increasing, and the price of oil starts to decline. Then suddenly Saudi Arabia announces it will cut production in April and Moody's Pop up with a positive report about oil prices, and suddenly despite the fact that there is a glut of oil, and the reality is its growing, not declining, the price of oil stops falling and starts to inch back up. If I was the suspicious type I'd say a bunch of folks had conspired to stop the drop in oil prices, and talk them back the other way. I'm actually fine with that. Taking WTI back to $65 guarantees that U.S. production will continue at a record pace, and exceed everyone's expectations. While there's no reason for oil to be over $40 a barrel, I'm rooting for them to keep WTI at $65.

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