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Paul Sirani, Chief Analyst at Xtrade, looks at the forecast for oil prices in 2017

Telling the story of oil prices is certainly easier than predicting their future. Ultimately, we’re looking at supply and demand, and whether we can foresee how they may weigh on each other in the months and years ahead.
In many places, you will read that there is an oil crisis, with growing need to delve into the earth’s reserve tank, if not run on fumes.
Population is growing, meaning there are more people to keep warm and more cars being driven, fuelling the demand for oil.
But oil prices have been low for a long time now. This time last year, the cost of Brent crude fell to less than $30 a barrel, and then spent the whole of 2016 lingering around the $40 a barrel mark.
Despite a sharp fall in 2009, prices were kept at almost double that from 2005 to 2014, but since a decline in the first quarter of 2015 prices have failed to recover significantly.
Now, almost two months on from the last OPEC handshaking session in Vienna, oil prices stand at around $55 a barrel.
The conference said it was vital that stock levels were drawn down to normal levels, and the markets have responded with some faith.
Members, in agreeing to this decision, confirmed their “commitment to a stable and balanced oil market, with prices at levels that are suitable for both producers and consumers”.
The effectiveness of the OPEC-led oil production cut in raising prices above $55 per barrel remains questionable, though, with US frackers poised to ramp up production.
Further, even if OPEC were to extend cuts following its next meeting in mid-2017, we surely wouldn’t feel the effects until much later in the year, if not 2018.
Production in the US is one of two obvious trends pinning prices down, and there’s little evidence to suggest that won’t continue.
Secondly, whilst production drying up is far from guaranteed, we don’t see demand firing up either.
China, although in a thirstier spot than in 2012/13, is not guzzling oil like it used to and their Asian counter-parts, South Korea and Japan, are importing at notably low levels.
Looking further ahead, China has only just begun to frack, but increasing efforts to harvest their unrivalled shale deposits will hit demand at some point in the near future.
On the upside for prices, Europe is experiencing prolonged periods of freezing temperatures and that’s likely to stabilise demand in the opening months of 2017. Whether such conditions can provide prices with a notable and long-lasting boost remains to be seen.
We’d expect prices to remain low throughout the year, with any such rally in prices unlikely to exceed the $70 a barrel mark.

Xtrade Review

Thursday, 26 Jan, 2017 / 9:02

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