Oil prices are likely to be higher in 2018 than they were last year, but are likely to lose some of their recent momentum as shale producers in the US ramp up activity, according to two new reports from analysts at Gulf banks.

The National Bank of Kuwait (NBK) said in its note on Saturday said that after falling in six of the last eight sessions, the Brent crude price closed at $65.53 on Wednesday, meaning the year-to-date price moved into negative territory for the first time this year. This is 7 percent lower than the four-year high oil price of $70.50 on 24 January.

The NBK note by senior economist Omar Al-Nakib said that the recent rise in oil prices had been supported the OPEC/ non-Opec deal to curb supply, as well as "robust oil demand, supply outages, heightened geopolitical risk premia and, up until recently, a weakened US dollar".

It said that lower forward prices for oil when compared with nearer-term and immediate (spot) delivery prices (a market structure known as backwardation) indicates stronger demand and tighter supply, leading to some investment houses raising their price forecasts.

However, it also said that consensus forecasts among analysts indicated that concerns remain that rebounding prices will lead to US shale producers ramping up supply. As a result, consensus forecasts currently stand at $62 per barrel, it said, which is 13 percent higher than the $54.80 average price for Brent crude achieved in 2017, but which is lower than the current price.

Meanwhile, Qatar National Bank said in a note published on Saturday that it was upgrading its price forecast for Brent crude this year to between $60-65 per barrel, up from $55-$60 previously. It said that non-Opec production is to increase by 1.7 million barrels per day this year, with US production contributing 1.35 million barrels of this.

"With oil prices recently rising above the US shale breakeven price, estimated to be $63 per barrel in 2018, US shale producers are likely to have already locked into forward prices around this oil price level and have already begun to ramp up production this year," QNB's note said.

A report on the future of energy markets unveiled by consultancy firm AT Kearney at the World Government Summit in Dubai last week stated that governments and national oil companies in the Middle East should adopt three strategies to ensure they make the most of their natural resources.

The first is to embrace the adoption of renewable energies, the second is to leverage natural gas (including shale) reserves, and the third "and possibly most important" action is to expand down the value chain, it said, using hydrocarbons to produce higher value products such as petrochenicals, and to undertake industrial activities, such as metals smelting, which require lots of energy use.

In a press release accompanying the report, Rudolh Lohmeyer, a vice president of AT Kearney's global business policy council, said: “The Middle East enjoys an important advantage due to both its comparatively cheap hydrocarbon reserves and its geographic location.

“At these times of change, it is key that nations and national oil companies manage uncertainty by applying the disciplines of strategic foresight to their decision-making,” Lohmeyer added. “This is particularly critical for a sector in which the returns on capital investment unfold over decades.”

Further reading:

Oil gains in weekly recovery on equities rebound, weak dollar

UAE remains committed to oil output cut deal: Minister of Energy

Oil producers to draft longterm alliance deal by end-2018: UAE minister

Saudi, Russia focus on rebalancing oil markets

Surge in global oil supply may overtake demand in 2018 - IEA

 

(Writing by Michael Fahy; Editing by Anoop Menon)

(michael.fahy@thomsonreuters.com)


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© ZAWYA 2018

 

© ZAWYA 2018