Oil could reach $60 in ’17 pushing market rebalancing’. Speculations are rife that oil price could reach $60 per barrel in 2017 and $70 in the subsequent year but price of more than $50 would trigger additional output from US shale producers, pushing market “rebalancing” to late 2017, according to a study.
According to the two output cut agreements within the Organisation of the Petroleum Exporting Countries (Opec) and with non-Opec members, a total of 1.8mn barrels per day (mbpd) of crude oil has been decided to be curtailed, starting next month. “An oil price of over $50 would trigger additional output from US shale producers as seen in the past few weeks of rising rig count and would partly offset the expected impact of the Opec agreement,” a Kamco research said, adding this would push market rebalancing to late 2017 as against more optimistic forecast from some agencies.
Opec had said that the oil market would not rebalance until the second half of 2017 as a result of a decline in oil inventories after the production agreement, but International Energy Agency’s (IEA) latest expectations were relatively more optimistic as it now expects a supply shortfall during the first half (H1) 2017. Finding that crude oil price surged more than 17% since the end of November on optimism related to lower production, speculations are that oil price could reach $60 in 2017 and $70 in the following year, Kamco, however said, “we see a price range of $55-65 over the next couple of years as opposite forces of shale vs Opec keep prices within this tight range.”
Meanwhile, a strengthening US dollar had a “negative” impact on oil prices over the past few months, partly offsetting the optimism on the expected reduction in output, it said adding the Greenback reached a 14-year high level after the US Federal Reserve recently raised benchmark interest rates by 25 basis points.
A new record Opec output in November 2016 limited the oil price growth in December. Besides, the US shale output continues to rise in view of rising oil prices. US oil rig count is now close to 500, after it surged the most in 31 months and increased by 21 to a 10-month high level of 498, as per the latest weekly update from Baker Hughes. Nevertheless, rig count remains far away from historical high levels.
On the consumption front, IEA raised its oil demand forecast with it expecting oil demand growth of 1.4 mbpd for 2016. For 2017, oil demand is expected to grow at a slightly lower pace of 1.15 mbpd, in line with Opec’s previous month’s expectations, and average at 95.56 mbpd. The growth would primarily come from Latin America and the Middle East as the economic growth improves, while in the Organisation for Economic Cooperation and Development, Americas is also expected to see higher oil demand partially offset by flat demand in Europe and a weakness in Asia Pacific. Non-Opec supply expectations for 2016 was kept unchanged by the Opec and is expected to contract by 0.78 mbpd to reach year-end supply of 56.2 mbpd. On the other hand, supply growth expectations for 2017 is expected to grow by 0.3 mbpd to average at 56.5 mbpd.
Sources: QGN, GT, Bloomberg.