EIC Analysis / Interesting Topics
BULL-BEAR: Oil Prices Quarter 3/2017
26 July 2017
Crude oil price (USD/Barrel) 2016 2017F 2018F
(Average)  Q1 Q2 Q3 Q4 Average Q1 Q2 Q3F Q4F Average Max* Min* Average
WTI 33 46 45 49 43 52 50 50 52 51 55 47 55
Brent 35 46 46 50 44 54 52 52 55 53 57 49 57

Source: EIC analysis based on data from leading international sources (as of June 30, 2017)

 

EIC’s view: Bear
The price of crude oil will remain largely unchanged in the third quarter of 2017. Growing production in the U.S., evident in the doubling of rigs over the past year, will weigh down on the price. However, the increase in demand for oil, on the back of global economic growth, especially in Asia, will support a gradual rise in price. Meanwhile, the severing of diplomatic ties between Arab countries and Qatar is not expected to have a significant impact on the price of crude, because Qatar is not a major oil producer, contributing only 1.7% to OPEC production share. Nevertheless, the conflict might drag on prices if it derails OPEC’s agreement to cut production by 1.8 million barrels per day.

 

BULLs   BEARs

• OPEC and non-OPEC producers agreed during their May 25 meeting in Vienna to extend their supply cut of 1.8 million barrels per day for nine more months, from June 2017 to March 2018. This will help to balance out demand and supply of oil in the global market and thereby stabilize oil prices. For the first half of the year, collaboration among OPEC and non-OPEC members was strong, with the compliance rate reaching 102% at the end of April 2017.

• Demand for crude oil is beginning to rise above supply. The Energy Information Administration (EIA) forecasts that global demand in the third quarter of 2017 will be 99.5 million barrels per day, while supply will stand at only 99.1 million barrels per day. Asia will see the fastest growth in demand for crude oil, at 3.4% yoy, while China, the second largest consumer of oil in the world, will be demanding 12.75 million barrels per day, a 3% yoy rise.

 

• U.S. oil production will likely rise, as the number of rig counts reached 733 at the beginning of June 2017, a 126% yoy jump. The trend is consistent with EIA’s forecast that U.S. oil supply will reach 16 million barrels per day in the second half of this year, up 9% yoy. Furthermore, U.S. oil inventory has continued to increase, reaching 513 million barrels in June 2017, with 3.3 million barrels added to stock during the month.

• President Trump announced that the U.S. would withdraw from the Paris climate accord. The agreement is designed to limit global warming by controlling carbon emissions, which is the root cause of the greenhouse effect, by burning less fossil fuel. Trump’s decision will impact oil producers positively, since U.S. regulations might be relaxed, stimulating more investment and production of oil.

• Five Arab countries, led by Saudi Arabia and Egypt, have severed diplomatic ties with Qatar. This may jeopardize the agreement among OPEC and non-OPEC countries to cut production by 1.8 million barrels per day until the end of March 2018. Under the agreement, Qatar is to lower its production of oil by 30,000 barrels per day.

 

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