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OPEC and allies set to stay course for higher prices

Oil&Gas Materials 19 February 2018 13:40
This January, the Brent crude price has risen by over 6 percent, making this its largest rise in January since 2013.
OPEC and allies set to stay course for higher prices

Baku, Azerbaijan, Feb. 19

By Gulgiz Muradova -Trend:

OPEC and its allies are likely to stay the course by keeping its current curb on oil output in place for the whole 2018 amid possible price falls in the oil markets, energy analysts told Trend.

Christopher Haines, head of oil and gas at BMI Research, (a Fitch Group company), told Trend that near-term weakness is expected in the oil price.

"Stronger US production and weaker demand due to the refinery turnaround season, is expected to drive some negativity in the price. Managed money positions in both Brent and WTI are very long at the moment and unwinding of the long positions in reaction will see oil prices fall," he said, adding that BMI Research remains positive with an average price expectation of $65/bbl for Brent for 2018.

Since autumn 2017, crude market somehow balanced and crude began to trade above $60 following the last two and a half years. This January, the Brent crude price has risen by over 6 percent, making this its largest rise in January since 2013.

One of the key drivers has been the US dollar, which has lost 3.2 percent against a basket of major currencies since early 2018. The market had also been dented by rising output in North America.

Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and SVP MEA-Risk, told Trend that some even argue that OPEC should increase prices to $80 or more

"Thus, have investors go into shale oil, and then sink prices again to $60, so crushing appetite of investors to fill financial gaps at shale oil companies," he noted.

Arab OPEC members (Saudi Arabia-UAE) and Russia are not considering any change in quota, according to Widdershoven.

"The pact has been signed for a year, fundamentals are still not where they want it to be. Some additional volumes still need to be removed, according to Riyadh and Abu Dhabi, from storage worldwide. As far as they are concerned no changes expected before end of 2018. For Russia, the prices are very good, as revenues are needed," he said.

Widdershoven believes that main option for disturbances would be a financial crash in China, removing demand or a possible split in OPEC due to direct confrontations with Iran.

Other issues are not going to have real impact and will not change the agreement before 2018, he added.

OPEC and its non-OPEC allies, all financially embattled, will continue to regulate prices, Gal Luft, the co-director of the Washington-based Institute for the Analysis of Global Security, for his part, told Trend.

"They surely realize that additional gains in oil prices will unleash a new wave of production from North American shale formations that need higher prices to become competitive. The same is true for Canada's oil sands. This can create a new glut followed by a new race to the bottom," he said.

Luft further said that OPEC can withstand oil in range of $60s, but not in range of $30s.

"So in June they [OPEC] will be extra careful and may decide against extending the cuts into 2019," he said.

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