‘Global Glut May Temper Oil price Gains this Year’

Global oversupply of crude oil may likely to limit price gains this year, despite a series of unplanned outages and shrinking U.S. shale production, a Reuters poll revealed yesterday.

Wildfires in Canada, political unrest in Venezuela and supply disruptions in Nigeria and Libya have wiped out nearly four million barrels of daily production, which soothed some of the concerns about oversupply and helped push oil prices close to $50 a barrel for the first time in seven months.

But analysts do not expect yearly prices to average much more than that before next year.

In the latest monthly Reuters poll, the 33 analysts surveyed forecast a 2016 Brent crude average price of $43.60 per barrel, up $1.30 from a forecast of $42.30 a month earlier, marking a third consecutive monthly rise in forecasts for Brent prices, which have averaged about $39 so far this year.

But record-high global oil inventories were expected to curb any major gains for some time.

Brent futures were expected to average $56.40 per barrel in 2017 and rise to $64.30 in 2018, the poll showed.

“The output disruptions are a key factor supporting prices at the minute. We don’t think prices will go much further from here,” Capital Economics commodities analyst, Thomas Pugh said.

“In fact, we think prices are vulnerable to a downturn in the short term if some of the disrupted supply returns, or there is evidence that higher prices are stimulating more production, he added.”

The analysts polled by Reuters forecast U.S. crude futures would average $42 per barrel in 2016, up by $1.50 from last month’s poll. U.S. futures have averaged nearly $38 per barrel so far this year.

Analysts were unanimous in expecting no significant decisions from this week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC).

However, some analysts expressed concern over the uncertainty surrounding Saudi Arabia’s strategy as it battles Iran for market share and after the appointment of new energy minister, Khalid Al Falih.

“We do not expect much from the next OPEC (meeting), given the state of disarray in producer relations after the Doha meeting. What people will be scrutinizing is Saudi Arabia’s position and intent, with newly appointed Energy Minister Khalid Al Falih,” BNP Paribas analyst Harry Tchilinguirian said.

Analysts also expressed surprise at the pace at which Iran has increased production and forecast a return to its pre-sanctions level of output by the third quarter of this year at the latest.

“The oil market is already oversupplied by about 1.5 million bpd. With Iran likely to increase output by at least 500,000 to one million bpd in the near term, and despite the fall in U.S. shale production of 600,000 to 800,000 bpd, the overall market will continue to remain oversupplied as demand growth is expected to remain weak,” said Rahul Prithiani, director at CRISIL Research.

Most analysts expect supply to match demand next year, but agreed that it could take much longer for the market’s overhang of unused inventories to clear.