QNB Raises Forecast for Brent Oil Prices in 2018

Doha, February 17 (QNA) - QNB raised Saturday its forecast for Oil (Brent) average prices for the year 2018 by $5 to $60-$65 a barrel. The bank said in its weekly note, released today, that Brent oil price has proven to be volatile over the past 10 days. After rising to above $70 a barrel in late January, which is 55 percent higher than the recent low of $45 a barrel set in June last year, the Brent oil price fell back to around $63 a barrel last week. Despite that, the bank still revised its average prices for 2018 upwards by $5. They said that their original forecast relied on a combination of a regression model, the oil futures curve, and consensus forecasts. They added that the upward revision was a result of increasing the break-even price of shale oil producers in the U.S. to $63 a barrel, and because both the futures curve and consensus forecasts have increased. Touching on the rise in oil prices in the second half of last year, the report said that underlying driver of the rally was a rebalancing in the global oil market. The global market, which had been oversupplied by 0.9m b/d in 2016, switched to being undersupplied by 0.5m b/d in 2017. Supply was held back by OPECs initial production cut to counter increases in U.S. production. Additionally, oil demand was higher than expected on the back of strong global economic growth and as a response to lower prices. The bank said that going forward they expect the market to change direction again as higher prices bring U.S. shale and other non-OPEC producers back into the market, offsetting continued strong demand growth. This would lead to a shift from an undersupplied market in 2017 to a balanced one in 2018. The Qatari bank said that non-OPEC production is expected to increase by 1.7 million barrels a day in 2018, as producers take advantage of higher prices, with total U.S. production (shale and non-shale) contributing 1.35m barrels a day of this total. With oil prices recently rising above the US shale breakeven price, estimated to be $63 a barrel in 2018, U.S. shale producers are likely to have already locked into forward prices around this oil price level and have already begun to ramp up production this year. QNB said that OPEC and its partners are expected to maintain strong compliance with the production freeze agreed last year, which aims to keep 1.8 million barrels a day off the market until December 2018. Among OPEC producers, production in Venezuela continues to fall due to unplanned outages, but this is expected to be offset by higher production from some OPEC producers that are not bound by the agreement (Libya and Nigeria). Turning to demand, QNB said that despite recent upward revisions to global GDP growth, including in emerging markets, the International Energy Agency (IEA) projects demand growth to moderate to 1.3 million barrels a day from 1.7 million barrels a day in 2017 as higher prices temper consumption. They added that risks to this oil demand forecast are skewed to the upside as emerging market demand for oil tends to be less price elastic and global growth forecasts continue to be revised up. (QNA)