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New year, new price

Brent futures will rise this year. So will volatility

International oil prices will increase this year after a tumultuous 2016, but the extent and duration of the rally will depend on oil-producing nations upholding their side of the bargain to cut 1.8m barrels a day from global supply.

Of the six banks and consultancies surveyed by Petroleum Economist - Energy Aspects, JBC Energy, Barclays, BNP Paribas, ABN Amro and Morgan Stanley - all expect Brent prices to rise in 2017. Energy Aspects is the most bullish, saying the international benchmark will average almost $66 per barrel in 2017. Last year, it averaged $43.55/b. BNP Paribas is the most bearish, forecasting an average of just $50/b across the year. The average 2017 price forecast across the six companies is $55.68/b.

Saudi Arabia's oil production has already begun to fall. The kingdom's output dipped by 160,000 b/d in December, to 10.48m b/d, according to the International Energy Agency (IEA). Since then the world's largest crude exporter has said its output has fallen below 10m b/d. Opec's total oil output in December was 33.09m b/d - down from a record high of 34.2m b/d in November. Global oil output fell by 0.6m b/d in December, to 97.6m b/d

While the IEA increased its estimate for global oil-demand growth in 2016 by 100,000 b/d, to 1.5m b/d, it expects consumption to increase by just 1.3m b/d this year as crude prices rise. The increase on the 2016 growth rate was mainly because of stronger-than-expected European demand for liquefied petroleum gas and diesel, a temporary boost from colder winter weather and industrial output growth in Asia.

Donald Trump's election as US President brings Iran back as a bullish factor for oil prices this year. If Trump carries out his pledge to dismantle the nuclear deal it could remove around 1m b/d of the country's exports from the market, according to analysts at Barclays. This is despite the Opec-non-Opec deal entitling the Islamic republic to increase its production. There is also the risk of Venezuela defaulting on its 2017 debt obligations, deepening the country's financial crisis and causing oil production shut-ins.

Signs of a slowdown in Chinese crude consumption last year have also begun to ease, providing further potential price support. The country's crude imports reached record levels in December, climbing 0.76m b/d, from a year earlier, to 8.6m b/d, according to Barclays. That's a rise of almost 10% compared with a year earlier.

But several long-planned projects are due to come on stream this year in Brazil and Canada, totaling 415,000 b/d of new output from these two countries alone, according to the IEA. Meanwhile rig counts continue to rise in the US and tight oil output could rise by 170,000 b/d this year alone, the IEA reckons, adding further volatility to the oil price outlook.

 

Bulls and bears: 2017 Brent price forecasts from Morgan Stanley and Energy Aspects
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