BULL-BEAR: Oil Prices Quarter 3/2017
|Crude oil price (USD/Barrel)||2016||2017F||2018F|
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.
• 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.
• 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.