JP Morgan still believes crude could climb as high as $75 this year. File Image / Pixabay
More demand crude but also more supply: that's the outlook for 2018 in a nutshell from the Organization of the Petroleum Exporting Countries (OPEC) via its latest monthly report, whose release has been accompanied by more predictions that prices may well continue to fall if not crash outright.
The cartel expects world demand for oil to grow by 1.59 million barrels per day (bpd) this year, up 60,000 bpd from last month's forecast (which would peg total global consumption at 98.6 million bpd), the drivers being steadily rising economic activity worldwide and a growing petrochemical industry.
But it also expects nations outside OPEC to pump a total of 59.26 million bpd this year, 320,000 bpd higher than its last forecast, with the U.S. accounting for more than half that upward revision.
Michael Tran, RBC Capital Markets
If regional areas of oversupply cannot find pockets of demand, prices will decline
Still, OPEC predicted the global market will return to balance at the end of 2018, no sooner or later than previously thought.
As for OPEC's performance in January with regards to its ongoing strategy to curb output and bring about that rebalance, the cartel reported that output fell by 8,000 bpd to 32.302 million bpd, but it offered conflicting figures about Venezuela's production rate last month: the cartel believes production recovered to 1.769 million bpd, while figures from secondary sources showed a decline to 1.60 million bpd.
No sooner was the report released than Reuters warned that the physical oil market is sending warning signals that the current crude price decline will continue: Michael Tran, managing director, energy strategist at RBC Capital Markets, pointed out that "Physical markets do not lie: if regional areas of oversupply cannot find pockets of demand, prices will decline.
"Atlantic Basin crudes are the barometer for the health of the global oil market since the region is the first to reflect looser fundamentals; struggling North Sea physical crudes like Brent, Forties and Ekofisk suggest that barrels are having difficulty finding buyers."
An anonymous trader added that "Supply is more than ample in Europe, Urals face strong competition from the Middle Eastern grades," with supplies of Urals to Asia being uneconomic due to a wide Brent-Dubai spread.
Capping these sentiments was the International Energy Agency, which in its monthly report warned that "in 2018, fast rising production in non-OPEC countries, led by the U.S., is likely to grow by more than demand," and that the situation is "reminiscent" of a wave of U.S. shale growth that preceded the 2014 crash in energy prices.
But crude forecasts wouldn't be complete without opposing views, and Scott Darling, head of regional oil and gas at JPMorgan, summarized the bulls' stance when he told Bloomberg television that "We forecast $70 on average this year for Brent, we could see $75 in Q2; we agree that demand has been particularly strong, not just seasonally, and there has been tightness on the supply data as well."
However, he conceded that the "demand risks are valid" and that it will be worth noting crude prices during the U.S. driving season.
For his part, Bob Dudley, CEO of BP, said "I think we're in a range where the shales will be a shock absorber on the upside and the downside....[we're] very comfortable where oil prices are as we project out, not just this year but the years ahead."
He concluded, "We are planning on now to the end of the decade (a price) between $50 and $65 a barrel."
Last week, as crude prices continued to drop, Goldman Sachs attempted to quash any panic by stating that fundamentals are "very much" intact and that three big corrections had occurred last year during oil's road to price recovery.