Azernews.Az

By Kamila Aliyeva

Barring any geopolitical upsets, the record 1 billion barrel of oil long held by funds at the beginning of 2018 could pose a potential challenge to the current bullish momentum, Saxo Bank’s analyst and Head of Commodity Strategy Ole Hansen believes.

A seasonal slowdown in demand from motorists and refineries should see storage levels rise during the first quarter, Hansen said in an interview with Azernews. The analyst was commenting on the current world oil prices.

“We have some concerns about the Chinese economy in 2018 that ultimately could lead to lower-than-expected demand growth. Given the impact on the price of oil of a few hundred thousand barrels per day in changed supply or demand, we see the risk – especially during the coming months – skewed to lower prices, with Brent crude oil at risk of returning to $60/b,” he said.

The bank forecasts Brent crude at $60/b with WTI three dollars lower at $57/b by year-end.

Hansen noted that the global oil market is currently moving towards a healthier balance between supply and demand.

The December 2016 decision by OPEC and Russia to curb production in order to clear the glut that had developed following rapid non-OPEC production growth between 2011 and 2014 contributed to this, added Hansen.

Strong demand driven by the current synchronized global growth and several supply disruptions during the final quarter helped to lift the price well above levels previously seen as possible during this phase of the recovery, he noted.

“In our view, however, the job is not yet done and the November’s decision to extend the original output cut agreement to the end of 2018 with a review in June was the clearest sign of the challenge that still lies ahead,” the bank’s representative said.

With OPEC and Russia having promised to keep production capped, the three key questions that are likely to determine the price of oil in 2018 are the production response to higher prices (not least from U.S. shale oil producers), the potential from new supply disruptions, and the continued strength of the global economy, according to Hansen.

In November 2016, the OPEC summit was held in Vienna, where OPEC members reached an agreement on reducing oil output by 1.2 million barrels per day. In December 2016 was a meeting of oil producers outside the OPEC. The meeting ended with signing an agreement to reduce oil production by a total of 558,000 barrels per day starting from January 2017.

OPEC and its partners decided to extend its production cuts till the end of 2018 in Vienna on November 30, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.

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Kamila Aliyeva is AzerNews’ staff journalist, follow her on Twitter: @Kami_Aliyeva

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