EIC Analysis / Interesting Topics
BULL-BEAR: Oil Prices Quarter 4/2017
11 October 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 August 22, 2017)


EIC’s view: Bear
Crude oil prices will increase slightly in the fourth quarter of 2017, but remain low due to higher demand for oil during the winter season and from growing Asian economies, led by China. Nevertheless, oil prices may be pressured downward by a rebound in production among such OPEC countries as Libya and Nigeria that are now recovering from political turmoil. Meanwhile, the pact agreement between OPEC and non-OPEC is becoming less effective in reaching its goal to cut production by 1.8 million barrels per day, as the compliance rate has fallen to 75%. As such, the agreement will not have a significant impact on reducing oil supply. However, it is possible that the supply cut agreement could be extended beyond March 2018 and that the compliance rate could rise. Both of these possibilities should be watched because they are factors that could push oil prices up.



• Global demand for oil will likely rise in the fourth quarter as winter starts. The U.S. Energy Information Administration (EIA) forecasts global demand for oil to expand 2%YOY in the fourth quarter of 2017, to 99.5 million barrels per day, with the highest growth occurring in Asia, at 4%YOY. In particular, demand from China, the world’s second-largest oil consumer, will rise by 3.5%YOY to reach 13 million barrels per day.

• U.S. crude oil inventory shows signs of tightening. The Department of Energy reports that oil stocks have fallen steadily since the first quarter. In July, inventories dropped by 10 million barrels to 482 million barrels, or a 2%YOY decline. This is consistent with the EIA forecast that demand for crude oil in 2018 will reach 20.3 million barrels per day, exceeding the expected supply level of 16.6 million barrels per day.


• In July, supply from OPEC producers rose by 0.17 million barrels per day from the previous month. Libya and Nigeria drove the increase, after domestic political problems began to subside. Both countries are exempt from the agreement led by Russia between OPEC and non-OPEC nations to cut oil production by 1.8 million barrels per day.

• The compliance rate - the proportion of production cuts achieved compared to the target agreed among OPEC producers - fell to 75% in July, the lowest rate since January, when the agreement came into effect. At the beginning of 2017, the compliance rate reached 100%. This shows that OPEC’s efforts to raise prices by cutting supply are not as effective as intended.

• The Fed may hike its policy rate one time in December, resulting in a Fed fund rate of 1.25%-1.5% at the end of 2017. This will trigger capital outflows from the oil market to the U.S. financial market, exerting downward pressure on oil prices.


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