Oil prices may hit $80/bbl this year, analysts say

Rising oil prices are leading some forecasters to predict they could hit $80/bbl this year.

Offshore staff

NEW YORK CITYRising oil prices are leading some forecasters to predict they could hit $80/bbl this year, according to a report from the Wall Street Journal.

Oil is already trading at its highest levels in three years after a 22% gain for US crude futures over the past 12 months, and some market watchers expect prices to take out new milestones as the rally continues in 2018.

On Wednesday, US crude futures rose to $63.57/bbl, with Brent, the global benchmark, up to $69.20/bbl.

Byron Wien, vice chairman of the Private Wealth Solutions group at Blackstone, put $80/bbl West Texas Intermediate on his annual list of 10 surprises in store for markets this year.

“Demand is going to continue to increase faster than supply,” Wien was quoted to say in the Wall Street Journal report. “It’s out of consensus, but people are underestimating the expanding middle class in the developing world and their resultant demand.” Shrinking inventories, commitment by OPEC to cut output through the year, and only modest production growth from outside the group could all also push prices higher, he said.

Production cuts by OPEC and other major producers and unexpectedly strong demand were a potent mix last year, helping pull prices out of a three-year downturn.

Citigroup also said $80/bbl oil is a possibility. In a note Tuesday, the bank said the right combination of geopolitical crises could tip crude prices into the $70 to $80/bbl range. With supplies already so tight, any unexpected disruption could cause prices to surge.

Much of last year was relatively calm in the oil world, with unexpected interruptions reducing supplies by about 2 MMb/d at the end of last year—half the 2016 peak. But there are looming risks to production in Iran, Iraq, Libya, Nigeria, and Venezuela.

“After hitting a five-year low in September 2017, global oil supply disruptions could materially increase in 2018” and in particular from OPEC countries, the Citi analysts reportedly said.

Still, others remain skeptical. Analysts at Commerzbank said Wednesday that market participants are ignoring the risks of a new round of production from US shale—something that looks increasingly likely at these high prices.

“Selective perception is the reason why the market is completely ignoring this just now. Attention is paid only to news that tallies with the picture of rising prices,” the analysts wrote.

Citi also cautioned in a separate note last week that high prices might not last. “Higher oil prices now will lead to a correction later in the year,” they were reported to have said.

01/11/2018

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