Americas News
Analysts Offer Conflicting Views of Demand But Are United in Grim Outlook for Crude Market
With the days rapidly winding down to a new year, conflicting predictions about where the crude industry and prices are heading have surfaced, although they have one thing in common: both outlooks are undesirable.
Bloomberg reported that the U.S. shale boom may not be enough after all to meet rising global demand: a new report by Rystad Energy shows that discoveries of new reserves this year were the fewest on record and replaced just 11 percent of what was produced; meanwhile, Suncor Energy Inc. thinks without more investment in conventional supply, output deficits may occur as early as 2019.
Adam Waterous, chief executive officer at Waterous Energy Fund, said shale "is not going to solve the global supply-demand issue [because] ts going to take a long time for those mega-projects to come back on."
Unfortunately, crude prices would have to climb to $80 per barrel and remain there to justify desirable deep water projects, and even then they would take a decade to become productive; for the time being, only exploiting smaller, less risky reserves make economic sense.
But the flip side to this outlook, presented Wednesday, is that demand may not be as robust as some experts anticipate.
Dominic Schnider, head of commodities and APAC forex at UBS Wealth Management's CIO office, told Bloomberg television that the oil market could be balanced in 2018, "and that to me sets the tone for prices to come under pressure again."
He predicted that by the end of 2018, Brent prices may hover at $57 and West Texas Intermediate at $53; he added that the ratio of longs to shorts in speculative accounts "are blown out historically, and so some good news on the supply front - and we have seen good news from the U.S. - I think that story could turn quickly quite sour."
As for demand, Schnider said 2017 was a "phenomenal" year, "but if you think of global growth it's not going to accelerate next year anymore and in some economies [it will] decelerate."
He concluded, "Don't get me wrong: the demand side is supportive of prices, but it's the supply side that responds more forcefully in 2018 and that calls a reduction in price."
Schnider's outlook dovetailed with equally worrisome prognostications for the New Year delivered by some analysts on Wednesday, and it falls in line with the overall notion that 2018 could be a volatile year for crude, with Helima Croft, global head of commodity strategy at RBC Capital Markets, recently echoing the sentiments of many experts by saying that while U.S. production is going to be enormous next year, its impact "might be offset by some geopolitical story."
