• Brent crude rose to $71.12 per barrel Thursday
• Global refining throughput hit record 81.5 mb/d in 4Q17
A monthly report of the International Energy Agency, called the Oil Market Report, has said crude oil would trade within the range of $60 to $70 per barrel this year.
In its January edition of the OMR, IEA revealed that, a survey of forecasters conducted by Reuters showed that in the current year, the price of Brent Crude, which is the international benchmark, would range between $60 and $70 per barrel.
According to the agency, “If OPEC countries plus their non-OPEC supporters maintain compliance then the market is likely to balance for the year as a whole with the first half in a modest surplus and the second half in a modest deficit. This scenario, or something similar to it, presumably lies behind the assumption by forecasters surveyed by Reuters that Brent will trade in a $60-$70/bbl range in 2018. Whether or not the recent price rise has run out of steam and seventy really is plenty remains to be seen.”
Crude oil prices last Thursday hit their highest since December 2014 with Brent futures settling at $71.12/bbl, which is above the three-year high of $70.37 reached on January 15, 2018. US West Texas Intermediate (WTI) crude oil futures climbed to $66.22/bbl in early trading, also the highest level since early December 2014.
Offering explanation on the rising oil prices, IEA pointed out that benchmark crude prices climbed to a three-year high in early January, owing to falling stocks, supply issues in the North Sea and Libya, and geopolitical tensions.
Specifically, the agency stated: “The price of Brent crude oil closed earlier this week (last week) above $70/bbl for the first time since 2 December 2014 (shortly after OPEC’s “market share” ministerial meeting) and money managers have placed record bets on the recent upward momentum continuing.
The factors contributing to this burst of optimism by investors include; the possible unraveling of the Iran nuclear deal and recent demonstrations in the country, disruption to the industry in Libya, and the closure of the Forties pipeline system.”
“Although these factors might have faded somewhat, there are others at work. The general perception that the market has been tightening is clearly the overriding factor and, within this overall picture, there is mounting concern about Venezuela’s production,” it added.
In fact, the IEA reported in the OMR that, “Global oil supply in December eased by 405 kb/d to 97.7 mb/d due mostly to lower North Sea and Venezuelan output. Production was steady on a year ago as non-OPEC gains of nearly 1 mb/d offset declines in OPEC. According to the report, there was a plunge in Venezuelan supply cutting OPEC crude output to 32.23 mb/d in December, boosting compliance to 129 per cent. “Declines are accelerating in Venezuela, which posted the world’s biggest unplanned output fall in 2017.”
Nevertheless, the agency believed rapid US growth and gains in Canada and Brazil would drive up non-OPEC supply by 1.7 mb/d in 2018, versus last year’s 0.7 mb/d increase. “US crude supply will push past 10 mb/d, overtaking Saudi Arabia and rivalling Russia,” it pointed out.
On the demand side, IEA stated that demand estimates in 2017 and 2018 are roughly unchanged at 97.8 mb/d and 99.1 mb/d respectively. According to the OMR, “A 40 kb/d downward revision to 2016 demand, however, pushed up the 2017 growth to 1.6 mb/d, while our growth estimate for 2018 remains unchanged at 1.3 mb/d.”
The agency explained that, “The slowdown in 2018 demand growth is mainly due to the impact of higher oil prices, changing patterns of oil use in China, recent weakness in OECD demand and the switch to natural gas in several non-OECD countries.”
“Global crude oil markets saw an exceptionally tight 4Q17 as the large draw in OECD crude stocks coincided with a decline in Chinese implied crude balances. The combined draw is estimated at 1 mb/d,” it added
However, the IEA’s OMR revealed that, global refining throughput hit a record in 4Q17 at 81.5 mb/d, instead of falling seasonally. “The US returned to pre-hurricane highs in December and China’s refiners ran at their highest ever quarterly level.
Margins suffered further from both product stock builds and the rally in crude oil prices,” it explained.