Banks raised their forecasts for oil prices for the fifth month in a row in February, signaling continued confidence that prices will continue to recover as the global supply glut drains due to production cuts.
Brent crude—the global benchmark—is now expected to average $62 a barrel this year, while West Texas Intermediate, the U.S. standard, should average $58 a barrel, according to a poll of 15 investment banks surveyed by The Wall Street Journal toward the end of February. Both predictions are up roughly $1 from the January survey.
Oil prices have been bolstered over the past year, as declining global petroleum inventories have helped to rebalance supply and demand in the market. Central to that rebalancing has been efforts led by the Organization of the Petroleum Exporting Countries to limit crude production.
OPEC and 10 major producers outside the oil cartel, including Russia, have been holding back crude output by around 1.8 million barrels a day, or nearly 2% of global supply, since the start of 2017. The participants agreed this past November to extend that deal through the end of this year.
“Overall, we see markets balanced in 2018 as we expect a strong commitment from OPEC and participating non-OPEC countries to deliver on the agreed deal,” analysts at JPMorgan said.
Prices have also been supported by geopolitical risks to supply in the Middle East, production outages in Venezuela, a weaker U.S. dollar and rising demand on the back of robust global economic growth.
Brent climbed more than 50% in the second half of 2017, surpassing three-year highs of more than $70 a barrel last month.
However, the crude price ascent faltered at the start of February, initially triggered by a global stock market rout. Oil markets experienced a more than 12% selloff in the first two weeks of the month, which was sustained by concerns the market is once again being inundated by U.S. shale output.
The International Energy Agency earlier this month said U.S. shale producers—motivated by the higher prices—are churning out crude faster than during the boom years of $100-a-barrel oil prices from 2011 to 2014, while warning that supply could outpace global demand and reverse the market’s tentative recovery.
Total U.S. crude production surpassed 10 million barrels a day late last year for the first time in nearly 50 years.
But banks remain largely bullish on oil prices this year because OPEC’s commitment to production cuts is “limiting the downside of shale production,” said Giovanni Staunovo, commodities analyst at UBS Wealth Management.
Oil prices have recovered some losses from the start of the month, climbing to three-week highs on Monday. But crude edged down Wednesday morning on the back of a slightly stronger dollar. Brent was trading down 0.12% at $66.44 a barrel on London’s Intercontinental Exchange, and WTI was trading down 0.24% at $62.86 a barrel on the New York Mercantile Exchange.
The banks in the Journal survey predict that, on average, Brent will fall to around $60 a barrel next year, before averaging $61 a barrel by 2020.
Source: WSJ
