Crude oil prices for 2018 projected to rise 11%: STEO

Pablo Tucker
January 13, 2018

As predicted, Tuesday's market showing of Brent rising above $68 per barrel is reportedly causing both jubilation as well as fear within circles of the Organization of the Petroleum Exporting Countries (OPEC): on one hand, the price is proof that the cartel's persistent production cutbacks are having a positive effect on tightening the market, but on the other the gains will likely spur even more us production.

A broad global market rally, including stocks, has also been fuelling investment into crude oil futures.

The price of West Texas Intermediate crude in NY was $US62.67 a barrel, on Tuesday, the highest in since December 2014.

This year, oil prices made their strongest start to a year in four years, with both Brent and WTI trading at the beginning of the year above $60 a barrel for the first time since January 2014, amid protests in Iran and uncertainties over whether more US sanctions on Tehran are on the way.

In trading on 12 January Brent fell to US$69 per barrel after briefly exceeding the US$70 mark the day before.

The Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russian Federation are extending the supply cuts through 2018, the second full year of restriction, to reduce the excess in the oil inventories.

US crude production is forecast to average 10.3 million barrels a day in 2018, a record level. The most affected by the decision are Europe and North America. The decline was mainly a result of the November 2016 OPEC production agreement that aimed to limit OPEC crude oil output to 32.5 million b/d. That follows the global benchmark's rally to $70/bbl on Thursday amid a steady run of diminishing US crude stockpiles and healthy demand.

The group is cutting output by even more than it promised and the restraint is reducing oil stocks globally, a trend most visible in the United States, the world's largest oil market. USA production rose to 9.78 million barrels in the last week. A false breakout above an old high is one of my favourite ways in determining trend reversal, so that's something I would be looking for in the case of oil going forward, especially as WTI's weekly and daily Relative Strength Index (RSI) indicators are both at "overbought" levels. MCX Crude oil futures are trading at Rs 4029 per barrel, down 1.73% on the day.

By 1415 BST, the oil price was still rising.

Oil extended gains above $62 (R766.95) a barrel before United States government data forecast to show crude stockpiles declined for an eighth week and as political tensions kept on simmering in Iran, Opec's third-biggest producer.

Shale oil producers are expected to pump 10 million barrels a day from next month, according to forecasts by the US Energy Information Administration. The global benchmark crude traded at a premium of $6.19 to March WTI. "It's not completely unexpected, given the price momentum".

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