Oil glut eas­ing, prices may stay at $50-55 in 2018, says Opec

Financial Chronicle - - PLAN, POLICY -

THE Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries on Wed­nes­day said it sees the glut in oil sup­plies that has ham­mered crude prices dis­ap­pear­ing as global eco­nomic growth picks up, but costs are ex­pected to stay sta­ble. In its reg­u­lar monthly re­port, Opec said “in­creas­ing ev­i­dence that the oil mar­ket is head­ing to­ward re­bal­anc­ing” had led to in­creases in oil prices last month.

Opec’s ref­er­ence bas­ket price for a price for a bar­rel of oil hit $53.44 in Septem­ber, its high­est value since July 2015. It doesn’t see prices climb­ing soon. “Oil prices are ex­pected to re­main at $50-55 per bar­rel in the next year,” Opec said.

“A rise above that level would en­cour­age US oil pro­duc­ers to ex­pand drilling ac­tiv­i­ties, oth­er­wise the lower prices could lead to a re­duc­tion” in in­vest­ments, it said.

The global crude fu­tures con­tract, Brent, was trad­ing at around $56.83 on Wed­nes­day morn­ing in London. The US con­tract, WTI, was at $51.30. The car­tel raised its fore­casts for global oil de­mand due to the im­prov­ing out­look for eco­nomic growth, which in­creases thirst for crude and other sources of en­ergy.

Opec now sees the global econ­omy grow­ing by 3.6 per cent this year and by 3.5 per cent in 2018, an in­crease by a tenth of a per­cent­age point. Added sup­plies will match in­creas­ing de­mand for oil, but Opec’s fore­casts for the balance of sup­ply and de­mand fore­see a greater reliance on the car­tel’s out­put.

Its data for this year show that de­spite in­creas­ing out­put in real terms by its mem­bers as well as non-mem­bers, the small rise in Opec pro­duc­tion left the mar­ket in deficit in re­cent months to soak up the glut of sup­plies.

Oil tum­bled from over $100 in 2014 after Opec na­tions led by S Ara­bia cranked up pro­duc­tion to try to push out US shale pro­duc­ers, which have higher pro­duc­tion costs.

After oil tum­bled be­low $30 last year, Opec shifted strat­egy with the out­put pact that has seen prices re­cover to the $50-55 range. Opec’s fore­casts see in 2018 both ris­ing de­mand and non-Opec out­put will leave room for its mem­bers to pump more and re­duce the glut in sup­plies.

A sharp rise in oil prices would tend to dis­cour­age con­sump­tion and thus growth.

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