The price of oil is expected to drop sharply in the remainder of this year, largely as a result of improving supply, the UK-based Capital Economics consulting company said in its report obtained by Trend.
"The price of oil has, at least until now, largely managed to shrug off the trade woes but only because of the more immediate risks to supply. OPEC has been under-producing, with a particularly large fall in Venezuela’s output. There are also concerns about future supply, following the US decision to re-impose sanctions on Iran," said the company.
This is likely to restrict Iran’s ability to export and lead to lower production there. Last time sanctions were imposed, Iran’s output fell by about 1 million barrels per day, according to the report.
The experts of Capital Economics believe that fears of lower supply will fade.
"As expected, OPEC and its allies agreed to raise oil output by up to 1 million barrels per day at their June meeting. At the same time, US shale firms should continue to increase production, incentivized by recent high prices," said the report.
On the demand front, Capital Economics anticipates more subdued growth owing to the expected slowdown in economic growth in China (2018- 19) and the US (2019).
"Moreover, we think that the risks to our forecast are to the downside. If global trade volumes dip, demand for transport fuel would fall. In addition, China has threatened a 25 percent tariff on oil imports from the US, which could curb demand for US crude," said the report.
The current forecast of Capital Economics assumes that Iranian crude output falls by 1 million barrels per day, but the company believes that this will be largely offset by a rise in supply from Saudi Arabia.
"As such, the market should be in surplus in 2018-19, with negative implications for prices. We forecast the price of Brent to ease back to $65 per barrel by the end of 2018 and $55 by end-2019," said the report.
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