Baku, Azerbaijan, Jan.19
By Leman Zeynalova – Trend:
Brent crude is likely to drop back from close to $70 per barrel to around $55 by year-end, according to the report released by the UK-based consulting company Capital Economics.
“Prices of most commodities are likely to fall this year. We think Brent crude is likely to drop back from close to $70 per barrel to around $55 by year-end. The latest surge in oil prices partly reflects temporary factors, such as geopolitical tensions and speculative demand. High oil prices will provoke an increase in supply from shale producers and reduced compliance with OPEC targets,” said the report.
Oil prices have surged in the last month benefitting from heightened geopolitical risk, OPEC’s decision to extend its output cuts until end-2018 and the ongoing drawdown of crude oil stocks in the US, said the consulting company.
Investors have piled into the oil market, adding further fuel to the rally, said the analysts.
“The market has shrugged off the steady increases in US production. It now seems only a matter of time until the US joins Russia and Saudi Arabia in producing over 10 million barrels per day bpd. What’s more, there is a high risk that compliance with the OPEC quotas starts to slip, particularly if prices stay high,” said the report.
Capital Economics expects expects solid growth in demand this year.
‘However, the rise in US gasoline stocks (see Chart 1 again) suggests that refineries are overestimating demand there. Our current forecasts suggest that the market will only fall into a small deficit by end-2018. As a result, OPEC will struggle to meet its target of a reduction in OECD stocks to their five-year average,” said the report.
Fears of supply shortages will fade and prices will ease back, according to the consulting company.
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