Three reasons to draw oil prices down in next 18 months
Baku, Azerbaijan, July 31
By Leman Zeynalova – Trend:
Oil market is expected to record small surplus in 2018, the UK-based Capital Economics consulting company said in its report obtained by Trend.
“Energy prices have risen since April, despite the sharp appreciation of the US dollar which would normally be expected to lead to lower prices. This was mainly because coal prices were boosted by strong demand in Asia, whilst oil prices were supported by concerns about supply outages,” said the report.
That said, oil prices have dropped back sharply recently as a supply disruption in Libya was resolved and trade tensions between the US and China escalated, according to Capital Economics.
The company expects oil prices to carry on falling over the next eighteen months for three key reasons.
“First, production in the US will almost certainly continue to surge as previously high prices incentivize drillers to increase output. Admittedly, there are some constraints on pipeline capacity, which may limit increases in supply in some areas. But additional capacity is under construction and prices are high enough to allow drillers to transport oil by rail or road in the meantime,” said the report.
Second, Capital Economics believes that supply from OPEC should rebound now that it has moved back to a group quota system. Third, the slowdown in global economic growth will weigh on growth in oil demand, according to the company’s forecasts.
“The upshot is that we expect the oil market to record a small surplus this year and a more significant one in 2019. This should weigh on prices. However, there are some significant risks to our forecasts. On the one hand, output could collapse in Iran, Venezuela or Libya. On the other, a sharp drop in global trade volumes and GDP growth, due to more protectionist measures, could lead to a slump in demand.”
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