Bearish forecast for oil on rising US output, Opec plans

Gulf between Brent and and WTI at widest in more than 3 years ahead of June 22 Opec meeting

Arise in US shale production and plans by the Organisation of Petroleum Exporting Countries (Opec) to gradually ramp up production are both expected to have a bearish impact on oil prices, analysts have said.

Russia and Saudi Arabia said last week they were considering lifting production to replace the involuntary loss of 600,000 barrels per day from Venezuela and Angola since the current production cut deal was introduced at the beginning of 2017.

Ehsan Khoman, director, head of research and strategist for the Middle East & North Africa (Mena) at MUFG Bank, said they remain committed to their structurally bearish mediumterm oil price thesis due to rise in shale production and Opec plans to raise production in an effort to stabilise oil prices.

“First, the transformative impact that the shale revolution has had, and will continue to have, remains the key game changer on global oil supplies,” he said, adding that faster learning rates, productivity gains, lower tax rates, project redesigns as well as access to low-cost funding will continue to drive engineering cost deflation in the shale industry.

Demand growth slowdown

Ole Hansen, head of commodity strategy at Saxo Bank, said the recent decision to work towards increasing production came after the first signs of rising crude oil prices began threatening to hurt demand.

In a report last month, the International Energy Agency said that there would be a slowdown in global demand growth in the second half of 2018, largely due to higher oil prices.

“The negative demand growth impact of rising crude oil prices could potentially make it easier to sell the idea of raising production to other members of Opec [and] nonOpec when they all meet in Vienna on June 22,” Hansen said.

“While crude oil could be settling into a range [as] we await the decision, the gulf between Brent and WTI crude continues to widen. The spread between the two global benchmarks now exceeds $10 per barrel — the widest in more than three years.”

Meanwhile, energy ministers from Saudi Arabia, UAE, Oman, Algeria and Kuwait called for sustaining the current partnership in production cuts.

In a meeting held in Kuwait city on Saturday, the ministers also emphasised the need for healthy market conditions that stimulate adequate investments to ensure stable oil supplies are made available in a timely manner to meet growing demand to offset declines in some part of the world, according to a report on Kuwait News Agency’s website.