Baku, Azerbaijan, Oct. 4
By Anvar Mammadov – Trend:
The oil market may complete 2017 with the best result since there was a decline in this market against the background of the excess supply in 2014, Ole Hansen, head of commodity strategy at Saxo Bank, told Trend Oct. 4.
“The efforts made this year by OPEC and other oil producing countries to reduce production, finally, had an effect, and the surplus of the global crude oil supply began to decline,” said Hansen.
“During the hurricane Harvey, which had swung out into the Gulf of Mexico in Texas, the US fuel reserves decreased substantially, and this will contribute to the growth of revenues of oil refineries and will support the demand for oil at a time when there is usually a seasonal decline,” he added.
According to Hansen, the increase in production in Libya and Nigeria, as well as among US companies developing shale deposits, had a negative impact on oil prices in 1H17.
“Falling prices probably affected the supply of energy carrier in the US stronger than expected, this is while Libya and Nigeria are unlikely to significantly increase production volumes in the near future,” he said. “Refineries postponed maintenance and repairs to take advantage of the demand, which increased sharply after the Hurricane Harvey. During a month following the disaster, gasoline and diesel fuel reserves in the US declined by 24 million barrels. According to average indicator for 5 years, an increase of 2.5 million barrels was usually observed in this period.”
Hansen noted that OPEC and other oil producing countries will be happy that the price difference between the WTI and Brent Crude has increased and is about $6 per barrel at the moment.
“Brent Crude’s return to backwardation not only increases profitability of the producers who use the spot price for calculation, but also attracts to the market financial investors willing to earn money on prolongation of positions.
“WTI oil price lagging by almost $6 also gives some guarantees that the US shale companies will not increase production yet," Hansen said.
“Nevertheless, the prospects for demand for crude oil in 2018 do not leave any chance for OPEC and other oil producing countries to increase oil production and they will have to extend the term of the deal, which will expire in March 2018, to render further support for the oil market.
"Taking into account a slight decrease in the refinery’s great demand, we forecast that Brent oil price will reach approximately $55 per barrel as of late 2017,” he added. “WTI oil price is unlikely to increase above $51 per barrel, as its price pushes the US oil producing companies to increase production volumes.”
“In 2018, much will depend on whether it will be possible to maintain the demand growth,” he said. “Taking into account our concerns over the development of the economy in the US and China, the rise in demand may be insufficient and on this basis we have not been ready yet to announce the end of the range trading that prevailed during 2017."