Oil prices steady on tighter market, but sustainability doubted

Barclays raises oil prices outlook for Q4, 2017 Q1

Oil prices were steady on Wednesday on an OPEC forecast of higher 2018 crude demand along with a bullish prediction by the IMF for healthy global economic growth next year.

Brent crude futures were down 2 cents to $56.59/barrel by 1:13 p.m. EDT and WTI rose 9 cents to $50.01/barrel.  Western Canadian Select crude jumped $1.60 to $40.14/barrel.

Both Brent and WTI settled the day 2 per cent higher on Tuesday.

According to Reuters, OPEC forecast higher demand for its crude next year and said the cartel’s supply cut pact is tackling the global crude glut.

“OPEC and key non-OPEC oil producers continue to successfully drain the oil market of excess barrels,” the group said.  Reuters sources say Saudi Arabia is reducing the amount of crude to its biggest buyers in Asia.

As well, Barclays boosted its price outlook for the fourth quarter of 2017 and the first quarter of 2018.

“We have finally shifted fundamentally from build mode to draw mode,” Reuters reports Barclays said in a note.

The International Monetary Fund also released forecasts which support oil prices.  According to IMF predictions, global economic growth will be 3.6 per cent in 2017 and 3.7 per cent in 2018.  This growth suggests crude demand will increase.

But, Barclays warns it expects “a return to build mode next year”.  Reuters reports Stephen Brennock of PVM said the IMF sees the economic recovery as being “on thin ice”.

“Several market participants will have taken solace from yesterday’s rally but the jury is out on whether it has the legs to go the distance,” Brennock wrote.

In a survey published by Deloitte Services LP on Wednesday, nearly two-thirds of US oil executives see crude prices staying below $60/barrel through 2018.  The execs added that prices are not expected to hit $70/barrel until the coming decade.

Concerns about rising US production continue, but Vitol’s chief Ian Taylor said on Tuesday that he expects US output to climb another 0.5 million to 0.6 million barrels per day (b/d) next year.  He expects at that time, production costs will force output growth to flatten.

On Wednesday afternoon, the American Petroleum Institute will release its weekly US fuel inventory data.  On Thursday morning, the US Energy Information Administration will release its crude stocks data.