QNB Expects Oil Prices to Continue its Recovery

Doha, April 09 (QNA) - QNB said Saturday in its weekly report that it expected oil prices to continue recovering in coming years, reach an average price of $56 a barrel by 2018. The report noted that Oil prices have enjoyed a recovery in recent weeks. They rose from $28 per barrel in mid-January to around $40 a barrel currently. The bank maintained that talks of an output freeze has played a role in the recovery, however there are also signs that the market is rebalancing. Demand growth is proving resilient and high-cost US producers are cutting their output. QNB said it expects the rebalancing to continue and forecast oil prices to recover further, averaging USD41 in 2016, USD51 in 2017 and USD56 in 2018. The report also highlighted to estimates from the International Energy Agency (IEA), oil markets were over-supplied by around 1.8 million barrels per day in 2015. The bank laid out four questions that will determine how the oversupply will be balanced. Four questions are likely to determine how this excess supply will be cleared and therefore shape oil markets in the short term. First, will the strong demand growth (which reached 1.8m b/d in 2015 a five-year high) persist? Second, how will the high-cost US shale producers respond to low prices, which are making some of their projects unviable? Third, what production will Iran add after the lifting of sanctions? Fourth, how will the rest of OPEC respond to low prices? The report provided some answers to these questions; In 2016, QNB expects excess supply to fall to 1.2 million barrels per day from 1.8 million barrels per day in 2015. They said that part of the construction will be due to an increase in demand, which QNB expects to grow by 1.2 million barrels per day in 2016. On the supply side, QNB expects production cuts in the US. Indeed, production data show that US oil output has been in decline since April 2015. Offsetting that will be additional production from Iran after the lifting of sanction. Iran has already added 370k barrels per day since January, according to preliminary data from the IEA. Finally, we expect that the rest of OPEC to increase supply relative to last year as crude production is maintained at current high levels. The overall reduction in excess supply should result in oil prices averaging $41 per barrel in 2016. In 2017, excess supply should fall further to 0.4 million barrels per day as the market continues rebalancing. Demand growth is expected to continue at 1.2 million barrels per day. On the supply-side, additional production from OPEC, especially Iran and Iraq, is expected to be partially offset by lower US production. The continued rebalancing should push prices to an average of $51 barrels per day. In the medium term, QNB believes that oil prices should be determined by the cost of the marginal producer, in this case US shale companies. Oil analysts currently estimate this cost to be $60 per barrel. Which should be the target price in the medium term. (END)