Baku, Azerbaijan, Oct.23
By Leman Zeynalova – Trend:
With physical demand seasonally weaker, there is a high probability of a relapse in prices over the coming months, said the report from BMI Research, (a Fitch Group company).
BMI Research forecasts an annual average of $57 per barrel for Brent next year.
As in 2017, the main drivers of price over 2018 will be China, the US, OPEC (+ Russia) and the impact of all four on stocks and sentiment, said the company.
“The rapid growth in shale was a key factor driving the market into surplus. Shale breakeven points have become perhaps the largest single factor capping price gains over recent quarters. It is our view that the market overall is undervaluing breakevens - overestimating the strength of future productivity gains,” said the report obtained by Trend.
The analysts point out that the market is still struggling to mop up the excess supply and both continued high compliance with the deal and a rollover to at least the end of Q217 will be necessary to prevent an aggressive relapse in Brent at the start of next year.
“We forecast cut barrels to return to market over H2, but at a slower pace than anticipated by most market participants. Heavy decline rates will drag on the recoveries of a number of producers (in particular Venezuela) and we expect continued production restraint from Saudi Arabia,” said the report.
On May 25, OPEC member countries and non-OPEC parties, Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and the Republic of South Sudan agreed to extend the production adjustments for a further period of nine months, with effect from July 1, 2017.
The reductions will be on the same terms as those agreed in November.
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