Crude oil prices to be under pressure in first half of 2018: S&P

S&P Global ratings says they are are likely to remain range-bound supported by Opec cuts and capped by US shale growth

Oil prices are expected to come under some pressure in the first half of 2018.

Crude oil prices rose after key Opec ministers expressed a preference for extending crude output cuts until the end of next year.

On Thursday, the benchmark US crude was up by 0.7 per cent to $57.69 per barrel on the New York Mercantile Exchange. Brent crude, used to price international oils, gained by 1.1 per cent to $63.20 in London. The gap between WTI and Brent oil has however marginally reduced following increased demand for US, that is WTI, oil due to high Brent prices. 

S&P Global ratings says oil prices are likely to remain range-bound supported by Opec cuts and capped by US shale growth.

Though oil has rebounded, it remains well below the highs of the past decade, unlike some metals such as copper and zinc. This is despite the discipline in oil supply and steady demand. Moderating inventory levels are expected to lift some drag on spot prices. “This also brings the US shale response into sharper focus, said global agency S&P Global. US shale oil producers raised production to encash on the boom caused by the Opec production cut. However currently promoters of shale oil fields have asked companies to refrain from over production as they want viability of companies coming back. Hence, how they respond to Opec's decision will be important for market going ahead.  Even S&P Platts expect WTI to remain around $4/bbl discounted compared to Brent oil to compete in the export arbitrage.

Oil prices likely to remain range-bound: $50-60/bbl.

Chris Midgley, head of Analytics at S&P Global Platts said that normalised stocks are lower than generally thought because of new infrastructure builds, stronger demand and higher exports of crude and products. 

"However, weak seasonal demand and stock builds will put pressure on prices in the first half of 2018," said Midgley, adding that Northern Hemisphere summer demand should provide more support to Brent prices in the second half of next year. 

"Looking beyond next year, we anticipate potential supply tightness as lower investment curtails production growth against continued robust demand, supported by low prices and healthy economic growth," said Midgley.

Opec members last year decided to reduce crude output by 1.2 million barrels a day from October 2016 levels to 32.5 million barrels a day in an effort to drawdown a global stock overhang and rebalance supply and demand. 

CARE Ratings says India is likely to face a short-term impact on the Opec verdict, since the country imports 4.2 million barrels a day, which is around 80-85 per cent of its consumption. 

The impact will be felt in terms of trade deficit, on the markets, oil prices and exchange rate.

"We believe prices of Brent oil will rise but it will not exceed $65/bbl as there remains a possibility of rising US inventories and production which will be keep the prices at bay, but at the same time, prices are likely to remain above the $60/bbl range, and not below that for the time being. The Indian crude basket will remain $2/bbl lower than Brent prices on an average monthly basis," says Care.

The international crude oil price in the Indian Basket was $61.60 per barrel (bbl) on November 29. This was lower than the price of $61.92 on the previous publishing day.