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APPEC: Crude oil prices seen bearish in 2018 on US shale, end to OPEC/non-OPEC cuts

Singapore — Global crude prices are poised for an upswing through the end of 2017 as inventory levels tighten, but growing supply is likely to outstrip demand next year, leading to market surpluses, a panel of industry analysts said Wednesday the S&P Global Platts Asia Pacific Petroleum Conference.

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Video: Can OPEC achieve a happy ever after?

The looming supply growth is mostly due to two factors: the scheduled end of OPEC/non-OPEC production cuts in March and US shale production, including NGLs, "growing like crazy," said New York-based Mike Wittner, managing director and global head of oil research at Societe Generale.

"I don't think we go any higher than we are today," said Wittner, reflecting on prompt-month ICE Brent futures that closed at more than two-year highs approaching $60/b this week.

Wittner pointed to "big product draws" due to the fallout from recent US Gulf Coast hurricanes helped push oil prices toward that high this week, along with potential geopolitical risk from Monday's Kurdish independence referendum in Iraq.

The OPEC/non-OPEC coalition would need to extend its production cut agreement through all of 2018 for the market to balance, Wittner said.

The agreement calls on OPEC and 10 non-OPEC producers, led by Russia, to cut a combined 1.8 million b/d in supplies.

At a meeting of the five-country monitoring committee overseeing the deal in Vienna on Friday, ministers said they saw no need at the moment to extend or deepen the cuts, with the third quarter showing improving fundamentals, but they remain poised to do so as the March expiry nears, if market conditions warrant.

As for US shale, producers hedging to take advantage of recent higher prices could set the stage for a price fall next year, chief economist at Gunvor David Fyfe said.

"There could be a hiccup in 2018 when we see a renewed surge in non-OPEC production," he said.

The International Energy Agency's chief OPEC oil analyst, Peg Mackey, said the "sharp decline of inventories next year looks unlikely."

US shale producers will play a critical role in bringing back supply as many have already made investments that will allow them to survive in a lower-priced environment, she said.

Some early hedging on WTI futures has likely begun with prices broaching the $52/b "trigger point" that prompts producers to lock in production, global head of commodities for Citi Research Ed Morse said.

"I suspect they're hedging now," Morse said. "It takes about three months from hedging to make rigs available and six to nine months to see increased production."

--Jeffrey McDonald,
--Edited by Jonathan Dart,