Americas News
Despite Latest Signs of Geopolitical Risk, Analysts Believe Oil Supply Discipline Will Support Crude Prices in 2018
Even though compelling arguments have been made that global demand in 2018 may not be as strong as thought and overproduction from many countries will return us once again to a crude glut, a Reuters poll released on Thursday show that the 32 analysts and economists surveyed believe strong commitment from the Organization of the Petroleum Exporting Countries (OPEC) for its output cutbacks combined with strong demand growth will support prices in the New Year.
However, the prices will be relatively unchanged from where they are now thanks to booming U.S. shale production: $59.88 per barrel in 2018, up from the $58.84 forecast in the previous Reuters monthly poll.
Frank Schallenberger, head of commodity research at LBBW, said, "Oil demand will be high in 2018, with solid economic growth worldwide ... Supply will be relatively tight because of high OPEC commitment."
The analysts theorize that large supplies of crude will head to Asia to satisfy strong demand from the region, and they pointed to U.S. exports to that region having already increased thanks to higher Middle East oil prices because of the OPEC cuts and a wide WTI-Brent spread.
To further support their argument they also cited total crude oil imports to China recently rebounding to the second-highest level on record in November at 9.01 million barrels per day (bpd).
As for the threat of U.S. shale, Ashley Petersen, lead oil market analyst at Stratas Advisors, said, "We see U.S. supply continuing to grow next year but are less concerned about a sudden supply glut re-emerging, as rising drilling and completion costs will likely slow production growth."
The survey did not elaborate on why the experts are convinced OPEC members will honour the recently extended production cuts, so presumably they are taking the rhetoric from OPEC and its boosters at face value.
Also seemingly ignored by the analysts is the contention in many quarters that geo-political risk will increase in 2018 and cause market tumolt; Venezuela has frequently been cited as a likely trigger for chaos, and on the same day the Reuters survey was released it was reported that the Bolivian republic's latest bid to ward off a collapse of its currency is the launch of cryptocurrency.
Jorge Rodriguez, communications minister for the socialist Venezuelan government, stated that the cryptocurrency will launch within days and be backed by 5.3 billion barrels of oil worth $267 billion: "Camp one of the Ayacucho block will form the initial backing of this cryptocurrency," he said, referring to part of Venezuela's southern Orinoco Belt, and added without giving detail that miners (a process whereby cryptocurrencies are obtained by users setting up computers to do complex mathematical calculations) are already lined up.
No technical details about the petro were offered, even though cryptocurrencies are decentralized and their success relies on transparency, clear rules, and equal treatment of all involved.
The upbeat Reuters findings are puzzling considering most of this week has seen a variety of gloomy prognostications about the crude market in 2018, with everything from U.S. shale not being able to meet booming global demand to waning global demand coupled with booming U.S. shale all said to lead to one outcome: market tumult.
