Americas News
Tumbling 2018 Oil Prices Part of a Good News/Bad News Forecast From Bank of America Merrill Lynch
Whether or not it was implicitly understood that U.S. president Donald Trump's quest to unleash the full potential of America's shale industry would laden the oversaturated global market with yet more oil and cause another downward price spiral, the prospect was spelled out clearly this week by Bank of America Merrill Lynch, which warned that oil and gas prices could tumble in 2018.
Analysts including Francisco Blanch, head of commodities research, wrote in a note that Trump's proposed corporate tax reform and a possible border tax could cause U.S. oil and gas investment to surge, and that the outcome would be a net positive for West Texas Intermediate.
However, they wrote that increases in production via the relaxing of the Clean Power Plan will likely send prices lower through 2018 – and this will be exacerbated if Mexico imposes its own border tax and starts a trade war, because the U.S. pipes 5 percent (or about 4 billion cubic feet per day) of its gas into that country.
But the analysts conceded that "The industry has high hopes for less red tape, a more pragmatic approach to regulation, and lower costs of having to comply with climate change rules," and they concluded that it's too early to state emphatically what the outcome of Trump's policies will be because they have yet to be fully fleshed out.
Accordingly, Merrill Lynch did not assign any numbers to their 2018 price forecast; but a roundup of forecasts provided by Market Realist shows that WTI and Brent will average $55.2 and $56.2 per barrel respectively in 2018, according to the International Energy Agency, compared to $52.5 and $53.5 per barrel respectively this year.
While Market Realist doesn't draw its own conclusions from the sources it cites, the overwhelming amount of data suggests a slow but steady climb for oil, driven largely by increasing demand in the U.S. and other countries; it also noted that Trump's new sanctions against Iran could curtail the Islamic republic's production, thus presumably helping to alleviate the glut and keep prices on an upward, if leisurely, trajectory.
For the time being, and despite the worldwide diplomatic tumult Trump is causing, prices are overall holding steady with positive developments possible in the near term, according to CNBC host Jackie DeAngelis.
She noted on Monday that there is strong support for oil at $53 with a range of $52 on the low and $54 on the high: "And traders are saying if you're not used to it you should get used to it at least for a little while longer."
DeAngelis also noted that "We do have evidence the rebalance is happening, we're just not sure what inning we're in."
Although energy independence has been touted by a long line of U.S. presidents stretching back to the 1970s, Harold Hamm, the billionaire pioneer of the U.S. shale boom and top energy advisor to Trump, is convinced it could happen as early as 2022.
