Latest Prediction of $60 Oil Is Undercut by Warning That a Drop to the $30s Will Occur in 2018

by Ship & Bunker News Team
Friday January 20, 2017

Another day, another round of conflicting opinion about where oil prices are headed, with the optimistic view expressed this time by Tarek Fadlallah, chief executive officer for Nomura Middle East, who predicts $60 per barrel in the near future.

Fadlallah told Bloomberg television that the incoming Donald Trump presidency would bring about an even stronger dollar against other world currencies in the short term, and that this would do nothing to help Gulf countries - many of which are undertaking economic reforms - improve their performance: "Oil is clearly an important factor, we continue to look for oil price to head towards $60 over the course of the next few months….but to be honest, during this challenging period of reform it will be difficult to see the markets rally substantially."

Fadlallah is the latest of many pundits to predict $60 oil: in December, John Sfakianakis, director of economic research at the Gulf Research Center, said oil revenue increases in Saudi Arabia were "in line with the expectations by the authorities that the market is re-balancing higher, and is clearly a sign that oil prices are expected to average $60 per barrel next year."

That same month, John Hess, CEO of Hess Corporation, predicted a "new chapter" of $60-$80 oil, as did Al Walker, CEO of Anadarko: "A sustained $60 oil price is likely to emerge as we move into 2017."

Other analysts of course have predicted oil as high as $100 in the foreseeable future, but those who view the trigger of all these predictions - the Organization of the Petroleum Exporting Countries (OPEC) cutback agreement - as doing nothing to ease the global glut and ultimately encouraging even greater production, see prices declining.

Shawn Driscoll, manager of the T. Rowe Price New Era Fund, told MarketWatch on Thursday that "We don't think there's much left to the rally; we're looking at an oil-price peak somewhere around here by the end of the first quarter, beginning of the second quarter."

In short, Driscoll - who correctly predicted the 2014 big drop in prices - thinks oil is still a long-term bear market, and that the worst is yet to come: "I think people are very confident the worst is over when you see some stocks back to their 2014 highs; we think we're going to see [prices in the $30s] in 2018."

As with other like-minded experts, Driscoll bases his opinion on the fact that key OPEC members like Iran, Iraq, Libya, and Nigeria are boosting production, and that U.S. shale is recovering.

Indeed, in the wake of the implementation of the OPEC cutbacks and despite persistent rhetoric from the Middle East (and some Western sources) that the market is rebalancing, it's difficult to see exactly how the global glut will be reduced enough to spur major price rises: in addition to OPEC members boosting production, International Energy Agency data released earlier this week showed that U.S. stockpiles are at 483.1 million barrels, the highest seasonal level in more than three decades; and a Reuters poll showed that Russian production will reach record highs after the end of the OPEC cutback agreement.