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November 1, 2017

Crude oil growth hides welcome inflation pressure

Crude oil growth hides welcome inflation pressure

Reuters forecasts

Oil is likely to extend rebound next year but periods of smooth rally are likely to follow severe volatility breaks. OPEC output cap probably stretched for the end of next year is projected to offset increase in US oil production returning global reserves to 5-year average.

As a Reuters study showed, analysts raised their oil price projections, as market hopes for more OPEC concessions were confirmed by statements of Saudi officials.


“Rumors of prolongation, expansion or dilution (OPEC deals) may affect prices, and markets will closely monitor any statements at the upcoming meeting. Assuming that this agreement will be extended until 2018, the actual levels of compliance will be an important factor for balancing the market next year.”

OPEC agreement

OPEC members have delivered about 80% of production cuts they agreed on. The meeting of Saudi Arabian Oil Minister Falid al-Falikh and Russian energy minister Alexander Novak is scheduled for Thursday where officials will discuss further joint actions. In the light of recent statements from both producers, output will is likely to remain capped after March 2018, when the current agreement expires. The next meeting of OPEC will be held in November.

According to the forecast based on a poll of 35 analysts, Brent is likely to finish this year at $53.25 per barrel, while a month earlier they forecasted price at $52.60 per barrel.The price of Brent crude rose by 17% for the past two months. The growth in prices was facilitated not only by the expectations associated with the possible extension of the OPEC + deal, but also by geopolitical risks, in particular, the prospect of resuming US sanctions against Iran, and tensions in Iraq, where the northern region of Kurdistan seeks independence.

Analysts note a gradual shift in sentiments in favor of a possible supply shortage in the market, against the previously expected surplus. This among other things, is facilitated by a reduction in the commissioning of new fields due to underinvestment in previous periods and recovery of demand at a faster pace.
Interviewed by Reuters, economists expect an increase in demand for oil on average by 1.5-2.5 million barrels per day until the end of 2017 and in 2018, mainly due to Asian countries such as China and India.

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