One of the most bearish oil-price analysts has upped its 2017 forecasts for the second time in two weeks.
Earlier this year, Goldman Sachs sensationally predicted the oil price could slump to as low as $20 a barrel as entrenched oversupply wreaked havoc on the market.
It was almost proved right, too, as oil sunk to well below $30 a barrel in February.
But since the powerful Opec cartel – followed by a group of other global producers – confirmed a deal to cut output by almost 1.8 million barrels per day from January, the US investment bank has increased its already much-improved forecasts.
At first it said compliance with the deal would be around 55 per cent, equating to a million barrels per day, and predicted oil would rise to $55.
It has now revised those estimates in the wake of signs that some Opec states are already making moves to cut production next month, says Reuters.
In particular, “Kuwait, Saudi Arabia, and Abu Dhabi… have notified customers that they would cut supplies from January”.
The investment bank says it expects Brent crude, the international oil price benchmark, to hit $59 a barrel in the second quarter and West Texas Intermediate (WTI) to make $57.50.
In the short term, however, prices will not move much from their current base in the low $50s, well below last week’s peak of $58, as the market waits for signs of Opec members following through on their pledges.
“Iraq, the group’s second biggest producer after Saudi Arabia, has signed new deals that will increase its sales to Asian customers like China and India despite its commitment to reduce output by 210,000 [barrels],” Reuters adds.
US investment bank Jefferies said the agreement “has likely put a floor on Brent oil prices in the low $50s until such time as adherence to the cuts can be assessed”.
Brent and WTI were mostly unchanged this morning, at around $54 and $51 a barrel respectively.
Oil price continues to drift as dollar surges
Oil prices continued to drift modestly from the year-to-date high reached earlier this week as the dollar surged to a 14-year high yesterday.
The US currency received a boost after the Federal Reserve increased base interest rates for the first time this year and predicted it would do so three more times in the coming 12 months.
While the December hike was expected, the forward-looking forecast represents a shift to a more bullish stance since September, when two rate increases were being predicted for 2017.
Caught off guard by the news, traders bought into the dollar strongly, prompting a sell-off in dollar-denominated commodities like oil.
“A stronger dollar tends to hit crude demand as it makes fuel purchases more expensive for users of other currencies,” says Reuters.
Brent crude, which earlier this week reached a 16-month peak of close to $58 a barrel, fell more than three per cent to below $54 before recovering slightly to around $54.30 this morning. Its US counterpart, West Texas Intermediate, fell around four per cent to below $51 a barrel, then bounced back to around $51.20.
Analysts said the falls came despite new data from US energy watchdog the Energy Information Administration showing a larger-than-expected drop in US crude reserves of 2.6 million barrels last week.
But some noted the bulk of the declines were concentrated on the west coast and do “not truly reflect supply demand fundamentals of the energy complex”, says Reuters.
In addition, petrol stocks were shown to have risen for the fifth consecutive week, increasing by 500,000 barrels, says Oilprice.com.
Also weighing on sentiment is a warning from Opec that supply would exceed demand by 1.2 million barrels a day without pledges from its members and other global producers to cut daily supply by around 1.8 million next year.
Analysts generally expect a degree of “cheating” from the cartel and Goldman Sachs has predicted the actual cut will be one million barrels, which would keep the market oversupplied.
However, traders believe oil prices will remain buoyant for now as optimism is strong on the Opec deal. There are also predictions trading could even rise above $60 a barrel early next year.
“Any weakness should be temporary. The market has faith in the Opec/non-Opec deal,” said Tamas Varga, at brokerage PVM Oil Associates in London.