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Oil market to return to small surplus in 2018

Oil&Gas Materials 12 February 2018 10:14 (UTC +04:00)

Baku, Azerbaijan, Feb.12

By Leman Zeynalova – Trend:

The oil market will return to a small surplus in 2018, with fears of supply shortages fading, according to the UK-based Capital Economics consulting company.

“We forecast the price of Brent to be $60 per barrel at end-2018, down from over $64 currently,” said the report obtained by Trend.

Oil prices took a tumble in early February as part of a broad-based sell-off in financial markets, according to the consulting company.

“However, the big picture is that they have risen significantly since mid-2017 on the back of heightened geopolitical risk, OPEC's decision to extend its output cuts and lower crude oil stocks in the US. Oil prices have surged since the start of September, reaching their highest level since late 2014. A slump in the US dollar from November boosted oil prices, at least until the end of January. However, a broad sell-off in risky assets and a rebound in the dollar put some downward pressure on oil prices in early February,” said the report.

Capital Economics analysts believe that another factor which has been supporting prices was the announcement by OPEC and its allies at the end of November that they would continue to restrain production until the end of 2018.

“However, output is currently above the group’s target. We expect compliance to deteriorate further as higher prices raise the opportunity cost of sticking to the quotas,” said the report.

In addition, the analysts mention that non-OPEC supply has been expanding rapidly.

“US oil production rose above 10 million barrels per day in November for the first time since 1970. What’s more, the increase in prices over the last few months suggests that the number of active drilling rigs in the US should continue to grow in the first quarter of 2018. This has all but ensured a large rise in US production this year,” said the report.

On the demand side, a slowdown in global economic growth over the next two years means that oil consumption growth should slow as well, according to Capital Economics.

China’s oil imports are likely to grow much more slowly as purchases for the government’s strategic petroleum reserves dry up, the analysts believe.

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Follow the author on Twitter: @Lyaman_Zeyn

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