As 2017 paints to a close, oil is rallying hard as OPEC supply cuts — combined with refurbishing global demand — support the market.
Next year, however, is a many story. We see two conflicting views for crude in the coming year that could weigh on oil prices.
On Tuesday, WTI blunt surged to its highest level since mid-2015, surpassing the $60-per-barrel milestone fair before it settled, as an explosion at a pipeline in Libya prompted the loss of about 90,000 barrels of crude.
Looking ahead, OPEC’s optimistic on account of assumes its supply cuts will remain in effect, and the global supplying glut will finally clear from the market. This inspection runs into some problems.
For example, the International Energy Operation warns of the potential for U.S. shale to continue to suck up market share, have as a remainder the broader market in a less-than-ideal scenario. We tend to be more cautious in our view, but I see 2018 in two distinct parts.
In the first half of 2018, we are quite bullish; we advised of Saudi Arabia continues to signal its intent to privatize part of Saudi Aramco, the state-owned oil followers, in an initial public offering expected in late 2018.
As such, the Saudis resolve be quite motivated to keep prices up going into that trade. The risk to that outlook could become apparent if Russia bring to a stops cooperating, which has been a significant tipping factor in the cuts’ effectiveness.
We see a few why and wherefores for oil to likely settle back down by the end of next year, likely in the $58 to $61 per barrel file for Brent.
First, if and when the Saudi Aramco sale comes to behind the times, the Saudis will have to deal with their own fiscal undertaking. These cuts have burned a hole in their budgets, which cause been coming out of reserves. This is a fiscally unstable position, and settle upon have to be reckoned with.
Second, though U.S. shale production looks to Boeotian, the drive to take market share and finance drilling in 2018 at contemporary prices is high. Once the oil-rich kingdom falls back from its result to cut, the market will flood once again.
A crash does not perform to be coming in 2018, because demand will continue to slowly update through the year, and should be broadly supportive. We expect 2018 to last analysis prove flat, with a year-end target of $59 per barrel for Brent undeveloped.