Russian Vow to Help OPEC Achieve Market Rebalance Comes Amid Predictions of U.S. Shale Keeping Crude Prices in the $50s

by Ship & Bunker News Team
Thursday July 20, 2017

More consensus came Wednesday that $50 is the new norm - and perhaps a new indication of market bullishness - for crude, with U.K. based wealth manager Coutts forecasting prices to be stuck within a range of $40 to $60 for the next year or more.

In its mid-year investment outlook, Coutts stated, "This is partly due to the stabilizing effects of U.S. shale production, which becomes profitable with oil at about $50 per barrel; as a result, we don't expect the oil price to move far from this level."

Coutts justified its forecast by explaining that once prices climb to $60 per barrel, U.S. shale producers increase output and OPEC is tempted to boost production, the result being a price fall back; conversely, price near $40 causes a reduction in shale output, which pushes prices back up.

A similarly-minded Hans van Cleef, senior energy economist at ABN Amro, said oil has a limited upside potential: "I lowered my 2017 year-end forecasts for Brent from $60 to $57 and WTI from $60 to $54," but, "in my view, the market is too negative and ignores the bullish arguments: strong global demand, declining (U.S.) stocks, the low investments in the sector, and a weaker dollar should be supportive for oil prices in the longer term."

Rob Thummel, portfolio manager at Tortoise Capital Advisors, is yet another analyst who on Wednesday predicted a mildly brighter market in the near-term: he told Bloomberg television, "We think that oil is set up for a second half comeback, but when we say that we think oil is probably range bound at $50 to $60 long term, and then in the second half of the year oil probably gets back to $50 per barrel, and that will be a result of declining U.S. inventories and global inventories as well."

Meanwhile in Russia, Vygon Consulting forecast that oil exports will decline this year to 252.5 million tonnes from the record high of around 255 million tonnes in 2016, due to a strengthening economy triggering a recovery of refining and fuel consumption in that country.

Also, a Russian energy source on Wednesday reiterated his country's alliance with the Organization of  the Petroleum Exporting Countries (OPEC) in its attempt to reign in rampant production: "Russia itself is fully committed to the spirit of the initiative aimed at stabilizing global crude markets and will continue working with other countries to achieve this goal."

Six OPEC nation and non-member ministers will meet in St Petersburg later this month to discuss compliance with production cuts and progress toward market rebalancing.

It's questionable whether Russia's rhetoric will have any influence on a market weary of the seemingly endless stream of talk and few results from the cartel; apparently more important to analysts of late is how U.S. shale will perform in the foreseeable future, with Goldman Sachs warning that prices could fall below $40 per barrel if investors don't see evidence of the country's production slowing.