Oil prices to be under pressure during first six months of 2018: S&P

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Oil prices to be under pressure during first six months of 2018: S&P

S&P has said that oil prices will likely be under some pressure in the first six months of 2018 and will remain range-bound at $50-60/bbl.

Oil prices have rose after key Opec ministers expressed a preference for extending crude output cuts until the end of next year, but it still remains well below the highs of the past decade. This is in stark contrast to prices of some metals such as copper and zinc and despite the discipline in oil supply and steady demand. Moderating inventory levels are expected to lift some drag on spot prices.

US shale oil producers raised production to encash on the boom caused by the Opec production cut. However currently promoters of shale oil fields have asked companies to refrain from over production as they want viability of companies coming back. Hence, how they respond to Opec’s decision will be important for market going ahead. Even S&P Platts expect WTI to remain around $4/bbl discounted compared to Brent oil to compete in the export arbitrage.

Last week on Thursday, the benchmark US crude was up by 0.7 per cent to $57.69 per barrel on the New York Mercantile Exchange. Brent crude, used to price international oils, gained by 1.1 per cent to $63.20 in London. The gap between WTI and Brent oil has however marginally reduced following increased demand for US, that is WTI, oil due to high Brent prices.

Chris Midgley, head of Analytics at S&P Global Platts said that normalised stocks are lower than generally thought because of new infrastructure builds, stronger demand and higher exports of crude and products.

“However, weak seasonal demand and stock builds will put pressure on prices in the first half of 2018,” said Midgley, adding that Northern Hemisphere summer demand should provide more support to Brent prices in the second half of next year.

“Looking beyond next year, we anticipate potential supply tightness as lower investment curtails production growth against continued robust demand, supported by low prices and healthy economic growth,” said Midgley.

Opec members last year decided to reduce crude output by 1.2 million barrels a day from October 2016 levels to 32.5 million barrels a day in an effort to drawdown a global stock overhang and rebalance supply and demand.

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