PRODUCTION cuts and rising demand for crude could push oil prices to US$80 a barrel in 2018, Barron’s report said.

Quoting analysts, the weekly American business newspaper said that Organisation of Petroleum Exporting Countries’s (OPEC) decision to cut production will drive oil prices higher.

“The reason that oil will soar is the oldest story in the oil world: Low prices created strong demand and growth, and now that demand is leading the way,” says Phil Flynn, senior market analyst at Price Futures Group told Barron’s.

Oil prices had been lower in 2014 and 2015 as supply outweighed demand followed by Opec’s  unwillingness to curb production amid fear of market-share loss.

But on Friday, prices breached their highest levels since December 2014, with West Texas Intermediate crude, the US benchmark, settling at US$64.30 a barrel on the New York Mercantile Exchange and global benchmark Brent crude ending at US$69.87 on the ICE Futures Europe exchange.

In tandem with the rise, the ringgit strengthened to its highest level in a year by reaching 3.96 to the dollar on Friday.

Rising oil prices is a good thing for Malaysia as it projected RM12.5 billion of government revenue to come from the petroleum sector.

At the time of the 2018 Economic Report, the government had projected oil prices to be at US$52 per barrel.

Every US$1 per barrel increase is expected to add up to RM300 million to government revenue.

Flynn said WTI oil prices will average around US$67 in 2018 before settling trading over US$70. If Opec keeps its crude production-cut deal till the end of this year, WTI prices could hit US$80 a barrel, said Flynn.

The average 2017 global oil demand was at 97.8 million barrels a day, up 1.6% from 2016, according to a report released in mid-December. It showed that global oil supply in November also stood at 97.8 million barrels a day, down 1.1 million barrels a day from a year earlier. The IEA forecasts a rise in 2019 demand to 99.1 million barrels.

Global demand is rising by over one million barrels a day per year, more “than offsetting incremental production from US shale producers,” said Jay Hatfield, co-founder of Infrastructure Capital Management.

He said “robust global demand,” on strong economic growth, will drive oil prices higher this year, forecasting WTI oil prices in the US$60 to US$70 range during 2018.

Geopolitical factors have added support to oil prices, with unrest in Iran, Opec’s third-largest crude producer, and a crisis in Venezuela threatening output.

– https://www.themalaysianinsight.com/