The biggest voices in oil disagree about 2018

The two most critical forecasts of global oil markets offer contrasting visions for 2018: one in which OPEC finally succeeds in clearing a supply glut, and another where that goal remains elusive.

In the estimation of the Organization of Petroleum Exporting Countries, production curbs by the cartel and its allies will finally eliminate the excess oil inventories that have depressed crude prices for more than three years. But in the view of the International Energy Agency, which advises consumers, that surplus will barely budge.

“Both cannot be right,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank in Copenhagen. “Whichever way the pendulum swings will have a significant impact on the market.”

OPEC and Russia have eliminated almost two-thirds of a global glut this year as the former rivals jointly constrict their crude production to offset a boom in US shale oil. At the heart of the clash between the 2018 forecasts is whether the alliance can deplete the rest of the overhang without triggering a new flood of American shale.

Late last year, OPEC and Russia set aside decades of rivalry and mistrust to end a slump in global oil markets that has battered their economies. Defying widespread scepticism, they cut oil supplies as promised, and resolved on November 30 to persevere until the end of next year. Brent crude climbed this week to a two-year high above $65 a barrel, although prices had slipped to $63.37 as of 11:32 am in London.

Both the IEA and OPEC agree that the coalition’s cuts are working. The surplus oil inventories in developed nations — OPEC’s main metric for gauging success — fell to 111 million barrels in October, from 291 million last November, according to the Paris-based IEA, established in 1974 in the wake of the Arab oil embargo.

OPEC predicts the re-balancing will be complete by late next year as those stockpiles plunge by about 130 million barrels in 2018.

By contrast, the IEA sees inventories remaining steady as new supply growth surpasses gains in demand. It warned OPEC on Thursday that it may be deprived of a “Happy New Year.”

BLOOMBERG