Baku, Azerbaijan, Dec.11
By Leman Zeynalova – Trend:
The price forecasts for Brent and West Texas Intermediate (WTI) oil for 2018 have been revised up to $60 per barrel and $54.9 per barrel, respectively, according to the analysis of the US JP Morgan Bank.
“We have revised up our average central scenario for Brent by $2/bbl and WTI by $0.25/bbl in 2018 to average $60/bbl and $54.9/bbl, respectively,” said the report obtained by Trend.
JP Morgan has also raised its average high case scenario for both Brent and WTI by $1.25/bbl and $0.5/bbl in 2018, respectively, if the market were to go into a balanced mode with less than anticipated US supply growth leaving the low case scenario mostly unchanged.
“We expect end-of-period Brent and WTI to be around $65/bbl and $60.5/bbl in 2018, respectively. The change in our 4q2018 end of period Brent forecast is on the back of OPEC’s decision to extend cuts and reassurance from Saudi Arabia’s Oil Minister on balancing the oil markets in 2018,” said the bank.
JP Morgan retains the expectation that 1q2018 will see some softness in pricing, as demand hits a seasonal low point because northern hemisphere weather-related demand appears insufficient to offset the economic impact of vacations in the OECD (Organization for Economic Co-operation and Development), China and low Middle Eastern power demand.
Nevertheless, the 2018 Commodities Outlook flagged several upside risks to the baseline outlook for 2018, one of which was the inclusion of Nigeria and Libya in the revised OPEC.
“Additionally OPEC in general and Saudi Arabia in particular during the press conference commented that they will balance the markets if there are additional barrels added by shale or other non-OPEC participants and will not release all the barrels that are currently taken off the market immediately once the deal ends. Specifically, such a development was seen as a potential catalyst for raising our 2018 average price and our end of period forecasts,” said the report.
JP Morgan now assumes that OPEC will agree in June or possibly in November to extend the cuts through to the end of 1q2019, much as the current agreement was originally designed to expire at the end of 1q2018.
“It makes little sense for OPEC to agree to reintroduce supplies during the quarter with the weakest seasonal demand. Compared to our previous price forecast, this lifts the back end of the price forecasts by substantially more than the annual average,” said the bank.
Earlier, OPEC announced that it, along with Russia and several other non-OPEC producers, had reached an agreement to extend its production deal for a further nine months. This would shift the expiration date of the agreement from March to the end of 2018. The agreement is on the same terms as those agreed in November last year.
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