1. Newsroom
  2. Oil market commentary
Menu
Analisi 07.03.2017

Oil market commentary

Oil market commentary

Brent crude oil is struggling to move beyond USD57/bl since its rally last November when it rose +USD10.10 per barrel.


The market has turned “flat as a pancake” as Brian Gilvary, BP's CFO said. Oil is trading between USD52/bl and USD57/bl.

The market remains oversupplied despite steady global demand and OPEC/non-OPEC agreement to cut their production. A crude market that seems stuck in its current range reflects uncertainties surrounding draws on global oil inventories and the market’s efforts to rebalance.

OECD commercial inventories are still 280 MMbbl above their five-year average. The oil market’s rebalance could be delayed further if global supply increases strongly this year.

Global demand remains constant. IEA has revised up its estimation of 2016 demand growth and is forecasting a +1.4 MMbbl/d increase for 2017. Recent improvements in industrial activity in Europe and non OECD areas should support this.

Furthermore, the apparent inability of the crude market to break out from its current range is explained by risks emerging on the supply. There are two key principal drivers here and both relate to supply. Upward pressure is coming from OPEC crude output cuts while a downward push is the result of the recent recovery in US crude production.

Last January, OPEC’s production reached 32.3 MMbbl/d, down by 1.84 MMbbl/d from November production. If the January level of compliance among OPEC members is maintained, the difference between global demand and supply should reduce inventories by more than 0.5 MMbbl/d. Nevertheless, all of this depends on what will happen with Non-OPEC production where there is an expectation of a rise next year of more than 0.7 MMbbl/d in Brazil, Canada and the US. However, supply should actually go down in other non-OPEC countries, and the group's overall production should increase by only 0.4 MMbbl/d next year (IEA).

Investors continue to have a keen focus on US oil production, in particular shale/unconventional oil. During the last two years, the US accounted for 70% of the increase in OECD inventories. Currently, the rapid growth in the US rig count (+32% in the last three months) is increasing the risk of seeing higher than forecast US oil supply growth, with the consequence of delaying any rebalancing in the oil market.

Preliminary estimates indicate world supply fell 1.5 MMbbl/d in January; with January OPEC/Non-OPEC output ending below end 2016. OPEC supply fell by 1 MMbbl/d to 32.06 MMbbl/d (90% compliance). Non-OPEC production fell 0.22 MMbbl/d to 23.46 MMbbl/d. In 2017, OPEC expects non OPEC supply to grow by 0.24 MMbbl/d (from Brazil, the US, Canada, Kazakhstan).

In 2017, US total liquids output is seen rising 0.24 MMbbl/d; within that, OPEC expects US onshore output to remain stagnant at 7.3 MMbbl/d.  

Record OPEC compliance cuts, lower non-OPEC supply (excluding the US) and stronger demand growth will bring an end to the supply glut in the market.

In conclusion, there is a confident expectation of the market rebalancing in H217 which supports the reite¬ration of a six-month price forecast at USD 55/bbl- USD60/bbl.


RODRIGUEZ Erasmo.jpg

Erasmo Rodriguez
Energy and utilities equity analyst

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Le news più lette

Analisi 01.10.2020

COVID-19: UBP vi terrà aggiornati

Dalla comparsa del coronavirus, UBP accompagna e sostiene i suoi clienti nel contesto inedito di questa crisi sanitaria mondiale. La Banca vi aggiorna regolarmente sull’adeguamento dei suoi piani alle regole precauzionali fissate dalle autorità e condivide con voi le più aggiornate analisi dei suoi esperti sulle conseguenze della pandemia per l’economia mondiale e i mercati finanziari.

Analisi 30.06.2020

Aggiornamento delle prospettive di investimento per il 2020

L’economia globale al bivio

Analisi 24.06.2020

Market turmoil brings new opportunities for pragmatic investors

March 2020 was difficult time for many investors, as COVID-19 spread across Europe and the US, leading to sharp sell-offs in fixed-income credit markets. While such market turbulence is not to be welcomed, its occurrence can create opportunities.

Altro da leggere

Analisi 23.10.2020

Podcast - No election rally for the dollar

Our Global Head of Forex Strategy, Peter Kinsella, shares his thoughts on the forthcoming US presidential election.

Analisi 15.10.2020

The draw of the booming fintech sector

Martin Moeller, Portfolio Manager of our newly launched strategy, shares his view on why global fintech equities are an interesting investment right now.

Analisi 05.10.2020

Webinar – Opportunities in the Gold Mining Sector

On Thursday 1 October 2020, UBP's experts Norman Villamin and Peter Kinsella hosted a webinar with Evy Hambro, Global Head of Thematic and Sector Investing at Blackrock, to discuss what gold investors can expect in the quarters ahead.