Brent oil predicted to exceed US$60
Brent oil prices could rebound above US$60 per barrel this year as the market rebalances and large volumes of crude are withdrawn from storage, says a new report from Citi Research.
The report, released Monday, by Citi’s Edward Morse and other analysts, says the oil market is ready for “a hefty draw that should take Brent to over $60 per barrel, but producers will have to extend their production agreement through year-end.”
When producers from the Organization of the Petroleum Exporting Countries and non-OPEC countries such as Russia slashed their current and ongoing production agreement last year by a combined 1.8 million barrels per day, oil prices rallied by US$10 per barrel.
However, while the agreement was triggered by a rational set of good intentions, it “just missed paving the road to hell” for OPEC as rival producers raised their output, Citi said.
The Citi report said that rally may have overshot equilibrium oil prices and the first quarter of 2017 “brought markets back to reality as the unintended consequences of the production cut exacerbated market oversupply.”
One of those unintended consequences was that Canadian and American energy companies hedged their production at higher oil prices at the time, accelerating their drilling plans and “guaranteeing a surge in U.S. production growth from the beginning to the end of 2017 of at least 800,000 bpd.”
Both Brent and West Texas Intermediate oil price benchmarks declined over the course of the first quarter — to below US$52 per barrel for Brent and US$48 per barrel for WTI — but have recently rallied.
Brent crude rose 74 cents to settle at US$55.98, not far from the one-month high of US$56.08 reached on Friday. U.S. crude was up 84 cents to settle at US$53.08.
Citi’s report said that Brent oil prices are set to rise over US$60 per barrel this year as long as OPEC countries agree with nonOPEC allies to honour their output cut.
It also says an extension is needed “to avoid a credibility problem that is already emerging with lagging Russian output curtailment” and “failure to extend could push prices back down to the low $40s by year-end.”