Oil prices struggle as US output outweighs OPEC deal optimism: Reuters poll

Oil prices not expected to hit $60/barrel until 2018

In a Reuters poll, oil analysts who are pessimistic that OPEC’s supply cut will offset the increase in US production, do not believe oil prices will reach $60/barrel until early 2018.

The March poll of 32 economists shows analysts expect Brent crude to average $57.07/barrel, slightly lower than February’s forecast of $57.52/barrel.

Forecasts for Brent in 2017 range from a high of $73/barrel by Raymond James to a low of $51/barrel by Commerzbank.

Rahul Prithiani, director at CRISIL Research is concerned that growing US supply will partly offset efforts by OPEC and some non-cartel members to lower the global oversupply of crude.

“If U.S. producers keep on increasing output at the same pace then rebalancing in the oil markets is expected to get delayed beyond 2017,” he told Reuters.

According to a report by the US Energy Information Administration, US shale production to increase by 109,000 b/d to 4.96 million b/d next month, the biggest increase since October.

Analysts are also concerned that despite adherence to the OPEC supply cut deal within the cartel, some non-OPEC members who signed on to the pact are not meeting their pledged production reductions.

“Poor commitment from outside the group could threaten the remainder of the agreement as Saudi Arabia is pulling most of the weight, while Russia, which in many cases is a direct competitor, has failed to deliver the promised cuts,” said Giorgos Beleris, analyst at Thomson Reuters Oil Research and Forecasts.

The survey also said that OPEC production is expected to fall for a third straight month in March, as the United Arab Emirates reported it had cut production this month.

Along with the UAE, other OPEC members, including Nigeria and Libya, who are exempt from the deal, have suffered cuts in supplies due to maintenance and protests.  These production drops will be calculated into the overall OPEC output numbers.

Despite OPEC’s efforts, Brent crude has fallen about 5 per cent this month, the highest percentage decline since July.  Speculators have cut holdings of US crude oil futures and options to the lowest since December due to record high US crude inventories.

“The initial liquidation in net long positions is a concern; it reflects weaker market confidence in oil prices, amid rising U.S. shale investment and production,” Cailin Birch, analyst at Economist Intelligence Unit told Reuters.

Birch added most oil-producing countries will see a major risk in an even faster sell-off, which may give OPEC the motivation it needs to extend the supply cut deal.

The Reuters survey expects US WTI futures to average $55.53/barrel in 207, slightly down from February’s forecast of $55.66/barrel.