Oil Market Snapshot – February 2017

  • Brent held c. $55/bbl for a second month, off slightly from its year-end value of $56.71/bbl, on fears of high inventories and an US production recovery
  • We forecast average Brent of $56.01/bbl in 2017, rising to $59.63/bbl in 2018 (+$2.79/bbl and +$1.86/bbl, respectively, on January’s forecasts)
  • We expect oil demand to rise by 1.59 million b/d in 2017 driven by China and India
  • Our analysis suggests OPEC’s compliance to its newly agreed production ceiling is around 71% as Iran, Libya and Nigeria have increased production
  • OPEC’s crude output stood at 32.139 million b/d in January, 390,000 b/d higher than the agreed target of 31.75 million b/d
  • The major test for OPEC is still to come in the summer, when members will have to hold the line in the face of higher prices; further production cuts may be needed
  • We anticipate oil companies to return to exploration, with Brazil’s pre-salt oil deposits becoming some of the most attractive areas for offshore investment
  • Our 2017 forecast for US onshore production is a decline of 250,000 b/d before increasing by c. 0.5 million b/d in 2018, with a risk of recurring oversupply

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