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