Oil analysts have grown more downbeat about the outlook for crude and expect prices to average around $55 a barrel this year even after Opec and its partners agreed to restrain production into 2018, a Reuters poll of analysts showed on Friday. "Greater Opec restraint will help to shore up prices, but we do not expect it to be enough to push prices above $55 per barrel on average in 2017-18," said Cailin Birch, an analyst at the Economist Intelligence Unit.
Birch cited continuing oversupply and only modest consumption growth. The survey of 34 economists and analysts predicted Brent crude would average $55.57 per barrel in 2017, lower than last month's forecast of $57.04. US light crude was expected to average $53.52 a barrel this year, dipping from last month's forecast of $54.73. The figures are the weakest projections this year, with forecasts falling slightly each month since the start of 2017.
The Organization of the Petroleum Exporting Countries and some non-Opec producers on May 25 agreed to extend output cuts of about 1.8 million barrels per day (bpd) until March 2018. The initial six-month deal had been due to end on June 30. But rising production from the United States has so far undermined its efforts to reduce bloated global inventories to the five-year average. US crude production hit 9.34 million bpd last week, its highest level since August 2015.
"US oil inventories will decline seasonally in the summer months, but will remain well above the five-year average," Commerzbank analyst Carsten Fritsch said. Opec's decision to extend the same level of cuts for nine months rather than reducing production further could prove insufficient to draw out the surplus despite Opec's strict compliance with the curbs. Analysts said the group is at risk of losing further market share to US shale oil producers, which could cause compliance with the deal to slip in the second half of the year. Rising prices, which had tumbled from above $100 a barrel in 2014, have encouraged US shale producers to increase drilling.
"The failure of members participating in the deal to deepen cuts leaves the pace of rebalancing being dictated by the oil-output profile in the United States," said Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics. "Growth in oil production from US shale acreages will remain a real threat that could scupper much of the benefits from output cuts by Opec and some non-Opec members," he said. Apart from booming shale output, supply recovery in Nigeria and Libya, the two Opec members exempt from the deal to cut output, pose additional risks for crude markets, analysts said.
Still, higher seasonal demand in the second half of 2017 could result in a significant drawdown in inventories that would move the market closer to balance, analysts said. "Growing demand will be the main factor draining the global oil surplus, but generally at a slower pace than perceived," said Norbert Ruecker, head of macro and commodity research at Julius Baer.