trending Market Intelligence /marketintelligence/en/news-insights/trending/TBSX4wwOj7Dx3xJxfUZ2gg2 content esgSubNav
In This List

Crude oil prices seen rising in 2018, could face challenges further out

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Crude oil prices seen rising in 2018, could face challenges further out

Decreased consumption and increased supply threaten long-term recovery for West Texas Intermediate crude oil and Henry Hub natural gas prices, analysts said.

Moody's Investors Service Research and Goldman Sachs, in client notes issued Dec. 1 and Dec. 4, respectively, bumped up price outlooks for WTI crude oil in 2018 but see a threat to long-term price sustainability as consumption could decline at higher prices and supply remains robust.

Even amid a likely increase in demand for U.S. production of liquefied natural gas and from Gulf Coast petrochemical plants, Moody's revised its price band for Henry Hub natural gas up just a notch to $2.50/MMBtu to $3.50/MMBtu, from $2.00/MMBtu to $3.50/MMBtu, amid outlooks for abundant U.S. supplies of natural gas produced from shale developments, along with associated gas from shale oil drilling.

Moody's was also restrained in its oil price outlook, continuing to assume medium-term price bands of $40 per barrel to $60/bbl through 2019, even as OPEC-led production cuts have been extended to the end of 2018.

Crude oil inventories have declined and oil prices firmed since OPEC's November 2016 agreement to cut oil production by 1.2 million barrels per day while non-OPEC members led by Russia agreed to cut production by 558,000 bbl/d.

"In October and November 2017, political challenges in the Middle East have bolstered oil prices, along with an assumption that OPEC would extend its agreement to cut production. Yet even with these factors offering a boost, we believe prices will remain rangebound — and possibly volatile — amid increases in US shale production, reduced, but still significant global supplies, and potential noncompliance with agreed production cuts — especially if growth in demand is more tepid," Moody's analyst Terry Marshall said.

Goldman Sachs, meanwhile, raised its 2018 Brent and WTI spot forecasts to $62/bbl and $57.50/bbl, respectively, from $58/bbl and $55/bbl previously, citing a stronger-than-anticipated commitment by Saudi Arabia and Russia to extend cuts.

The bank expects OPEC and Russia crude oil production in 2018 will average near 44.3 million bbl/d, or 0.35 MMbbl/d lower than previously forecast. Full compliance is expected in the first half of 2018, while combined sequential production growth of 0.51 MMbbl/d is expected in the second half of 2018.

The possibility of overtightening of the supply drives risk skewed to the upside into 2018, Goldman Sachs said, as the company's combined 2017-2018 global demand growth outlook is 0.35 MMbbl/d above OPEC's and 0.55 MMbbl/d above the International Energy Agency's.

As a result, Goldman expects cuts to end early, with a ramp-up in production in the third quarter of 2018. Still, inventories will be close to their five-year average level, lower than the bank's previous forecast.

Price pressure is expected to return in 2019 as a lower OPEC and Russia production path through 2018 could allow 2019 spare capacity to rise to 1.8 MMbbl/d as new capacity additions offset declines and with higher oil prices gradually incentivizing greater supply from other producers.

"We believe that shale and other producers will start to respond to a higher price signal, which may lead OPEC and Russia to more aggressively ramp up within their spare capacity. This leaves risks to 2019 prices skewed to the downside in our view," Goldman Sachs lead analyst Damien Courvalin said in the report.

Goldman Sachs forecasts a 2019 Brent price of $59.50/bbl, up from $58/bbl in its previous outlook but below its 2018 forecast price. The 2019 WTI spot price is forecast at $55/bbl, steady to its prior forecast and below the 2018 forecast price.