Forecast up for oil prices in 2016-2017

31 March 2016 18:20 (UTC+04:00)

By Fatma Babayeva

Some agencies have provided positive feedback for crude exporters with forecasts on increase of oil prices on the markets for the period 2016-2017.

The U.S. JP Morgan bank has raised 2016 prices forecasts to just under $38 a barrel for both Brent and WTI in its monthly Oil Market report, according to Trend news agency.

Oil prices are experiencing a slow increase on the eve of upcoming Doha meeting between OPEC and non-OPEC oil producers that will be held in Qatari capital on April 17 in an attempt stabilize falling oil prices through freezing crude oil production.

Recently, the forecast for both global oil benchmarks have been raised even to $47.75 per barrel, which is by $4.5 up compared to the previous projections by the bank.

JP Morgan expects Brent average price to be $34, $38 and $43 per barrel respectively in second, third and last quarters of this year. Meanwhile, WTI average price is forecasted to stand at $33, $39 and $44 for the mentioned period. In 2017, the highest price for both Brent and WTI is expected to rise to $55 per barrel at the end of the current year.

Meantime, RBC Capital Markets turned out rather "optimistic" for oil producers, saying that oil prices may go up to $70 due to the problems “Fragile Five” countries have been facing. Political difficulties and fights in Nigeria, Iraq, Venezuela, Algeria and Libya may cause interruption in oil production, and decreased output will push prices up in the market.

Despite this optimism, Tom Kloza, head of the U.S. Oil Price information Service (OPIS), warned the oil companies to keep their expectations at the price range between $40-50 per barrel.

The international price that Brent crude will be traded between $30 and $45 per barrel over the next few months, emphasized Kloza.

He believes that the balance between supply and demand in the oil market will be restored over time, but the current oil glut impedes market clearance now.

Prices is now pressed down by the repair works going on in the refineries of Europe and Asia, which leads to a reduction in their demand for oil in its own turn. That’s why petroleum storage facilities will be full in the first half of 2016 because of the oversupply in the market. Thus, the situation can change only during last four months of this year, the expert added.

The supply of oil in the market in 2015 is estimated at about 95.74 million barrels per day, and consumption 93.7 million barrels per day by the U.S. Energy Information Administration (EIA).

Some experts believe that demand for oil will grow by about 1.2 million barrels per day in the nearest perspective, which will help balance the market. Meanwhile, slowdown experienced in the development of the economies of the Asian countries and the weakness of currencies in countries dependent on extracted commodities pose risks to this forecast.

In addition, to restore the balance of supply and demand on the oil market may be achieved by declined production in Saudi Arabia, or any event which will eliminate certain amount of oil, Kloza said. Due to the ongoing conflict in Libya, Nigeria, and the Kurdish autonomy in northern Iraq, oil production has slightly decreased.

The oil glut in the market is no longer the first quarter there, and it will not disappear in a few months. On the positive outlook, the demand and supply of oil will be balanced in the fourth quarter of this year, and the demand may exceed the daily supply and begin to absorb the surplus available in storages in 2017, told Kloza.

The expert believes that the basis for the rise in oil prices at the end of the current decade has been laid. The oil companies reduced their investment in the hundreds of billions of dollars, and taking into account the depletion of existing wells to maintain production level producers always need to look for new oil.

Regarding the agreement on the freezing of oil production at the level of January, which had previously made by a number of major oil producing countries, will not solve the problem of overproduction, analysts said. This agreement is an empty and meaningless, and will not be followed, they believe.

Earlier, energy ministers of Russia, Saudi Arabia, Venezuela and Qatar have agreed to freeze the oil level on 11 January. Later, some oil-producing countries joined to this agreement.

in this context, the Doha meeting is the most anticipated event able to make an important decision to change the oil market.

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Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva

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