Lukoil's $65 Oil Price Prediction Underscores Sentiment of No Big Market Breakout in Foreseeable Future

by Ship & Bunker News Team
Wednesday March 1, 2017

Lukoil PJSC on Monday offered a slightly more optimistic forecast of oil prices than the norm with a suggested high of $65 - but the prediction merely underscores the notion that the circumstances affecting the market are too powerful to allow oil to break out to the degree many would like.

Gati Al-Jebouri, head of Middle East upstream for Lukoil, said oil will stabilize around $55 to $65 per barrel as long as the Organization of the Petroleum Exporting Countries (OPEC) abides by its production slash agreement, currently in its second month of implementation.

While he credited OPEC for fostering a period of market stability, he added that record global stockpiles and the steady recovery of U.S. shale will keep prices from rising much more than the $65 high: "We have a lid because of shale oil and we have a bottom because of the already proven decision and willingness of OPEC to maintain prices at a reasonable level."

But Lukoil is presumably not too disturbed by the price lid, since it is seeking to grow business in the Middle East, according to Al-Jebouri: the company is currently in talks with National Iranian Oil Co. about the Ab Teymour and Mansouri oil fields in the western part of the Islamic republic.

Lukoil is also hoping to pump oil from offshore fields in Abu Dhabi, and to produce heavy crude in Oman and Kuwait.

But if the bad news is there won't be any breakout prices for crude in the foreseeable future, circumstances suggest that recent predictions of $30 on the downside are equally remote: this possibility was raised in a CNBC report about how the buying by speculative traders in oil futures has created the biggest net 'long' position in history, signaling that if there is a break in prices, investors wanting a quick `out' could cause market calamity.

Andy Lipow, president of Lipow Associates, responded, "At these price levels, the specs are more inclined to enter the oil market on the long side as they feel we just won't go below $30 as world demand keeps rising."

He went on to note that, "The big bet is that OPEC/non-OPEC complies with the cuts and inventory draws; if over the next few months inventory surveys show little in the way of confirming the cuts, back to the mid $40s we go."

CNBC concluded, "While $30 is not what most analysts expect, the movements in the Energy Select Sector SPDR fund [which is down more than 5 percent in one month and usually leads crude] would suggest a re-test of a sub-$50 price might not be as far off as some would think."

An intriguing viewpoint of the market and OPEC's influence on it was offered recently by Richard Gorry, managing director at JBC Energy Asia, who told CNBC that OPEC members "were really trying to protect oil price on the downside, because in the last two quarters we literally saw prices fall off a cliff, and OPEC were very mindful of that coming into this year.

"I think they knew the market wouldn't be re-balanced, but they were making sure the producers were protected on the downside; so if you look at the current prices, they've done exactly that."