Americas News
Experts Praise OPEC for Heralding a Better Market in 2018 But Forecast Modest Crude Prices
Crude prices on Tuesday dropped sharply on an Energy Information Administration outlook that U.S. oil output will rise by 780,000 barrels per day (bpd) to 10.02 million bpd in 2018: West Texas Intermediate settled 85 cents lower to $57.14 per barrel, while Brent settled down $1.35 to $63.34.
Phil Flynn, senior market analyst at Price Futures Group Inc., tried to put a positive spin on the proceedings by declaring, "The market is respecting what [EIA] is saying but they're taking it with a grain of salt."
Now that U.S. shale's continued growth seems guaranteed and the Organization of the Petroleum Exporting Countries (OPEC) will maintain its production cuts for at least part of 2018, what do other observers think is in store for the world market in the New Year?
Suhail Al Mazrouei, energy minister for the United Arab Emirates, told Bloomberg television that "all signs are good" for the oil market in 2018, and he added that OPEC's role in the world oil market "is vital in restoring the market from where it was to where it is today."
Al Mazrouei went on to claim that the OPEC production cuts have so far "been working perfectly" in removing the global glut; however, he said that prices in the low $40s up to the $60s within the space of a year is undesirable and that moving forward he and his colleagues are hoping for less market volatility - which again he thinks will occur in 2018.
As for U.S. shale, he predicted that growth will be moderate rather than explosive as producers move increasingly away from "sweet spot production."
About the only thing the energy minister wouldn't predict was the price of crude in 2018; however, Chad Brownstein, chief executive officer for Rocky Mountain Resources, was more forthcoming and told Bloomberg that oil would reach $70 next year: "Petroleum products are going into infrastructure, aggregates are building the roads in this country, and that's going to drive prices much higher than they are today."
Dan Yergin, vice chairman at HIS Markit, was also forthcoming in his price prediction, although his was more conservative than that of Brownstein: he told Bloomberg that crude would reach the high $50s or $60s next year, due to OPEC's commitment to maintain its cutbacks for the duration of 2018 coupled with strong world economies.
Whether or not he had heard the news that Libya and Nigeria, who two weeks ago had committed to the OPEC cuts, are now chomping at the bit to boost production, Yergin described the cutback extension as "an historic accord" between members and non members.
However, he added that "a big question mark hangs over Venezuela: its production is going down, the economy is in a shambles....people are thinking about the Middle East, but they've got to think about Venezuela too."
As if to remind players that the reality of fundamentals will always trump sentiment about OPEC, heavy Canadian crude on Tuesday fell to a three year low against benchmark prices due to pipeline and rail network bottlenecks.
The Financial Post noted that "Canadian crude's discount to West Texas Intermediate futures has widened more than $10 since August as pipeline companies including Enbridge Inc. rationed space amid high Western Canadian inventories."
Mike Walls, analyst for Genscape Inc., said, "You are in a serious pain point right now: it's the perfect storm of too much supply and not enough capacity."
Despite many indications that OPEC's cutback extension will either be plagued by cheaters within its own ranks or persistent U.S. production, one of its strongest supporters in the west is Goldman Sachs; however, even the bank thinks the cartel's positive impact on prices will be limited, and in its latest forecast it pegged Brent and WTI hovering at $62 and $57.50 respectively for 2018.
