OPEC output reductions unlikely to continue beyond 3Q2017
Baku, Azerbaijan, Jan.27
By Leman Zeynalova – Trend:
Oil markets look set to tighten further in the coming quarters as better than expected compliance from OPEC and select non-OPEC producers with agreed production targets should ensure further drawdowns in oil inventories, according to the analysis of the US JP Morgan bank.
However, the decisions taken by producers in 2016 now look set to forestall a price recovery in 2018, the analysts believe.
“Consequently, we retain a 2017 Brent price forecast of $58.25 per barrel and introduce a 2018 price forecast of $60 per barrel. West Texas Intermediate (WTI) prices are $2 per barrel below this at $56.25 per barrel and $58 per barrel for 2017 and 2018 respectively,” said JP Morgan.
The analysts expect OPEC’s agreement to tighten balances in the short term.
However, the expected collapse of the deal and subsequent rebound in OPEC production expected in late 2017 and 2018 lifts forecast production by 0.5 million barrels per day in 2017 and 1.1 million barrels per day in 2018, according to JP Morgan.
For prices to be supported above $60 per barrel in 2018 would likely require continued OPEC output reductions that continue to tighten the market beyond the third quarter of 2017 – something that looks unlikely at this juncture, said the analysts.
During a meeting in Vienna, Austria, on Nov. 30, 2016, OPEC members decided to implement a new production target of 32.5 million barrels per day. Later, non-OPEC countries agreed to cut the output by 558,000 barrels per day during the meeting held Dec. 10, 2016.
Eleven non-OPEC countries – Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan – agreed to reduce the oil output.
OPEC and non-OPEC countries pledged to start implementing the deal from Jan. 1, 2017 for six months, extendable for another six months.
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