Will Brent touch $80? Six reasons why crude oil prices will rise in 2018

As the prices of Brent crude oil, a benchmark for India, consolidate around $70 a barrel, a debate has started over whether it is heading towards $80. Analysts are already turning bullish on crude oil prices with several of them revising their earlier forecasts upwards.  

In 2018 so far, Brent prices have risen 3.6 per cent and are quoting at $69.3, while they went up by 14 per cent in 2017. 

JP Morgan Global Commodity Research has upgraded its Brent oil price outlook for 2018 from $60 to $66 per barrel. Abhishek Deshpande, JP Morgan's head of oil market research, said, "Given the latest move in oil prices on the back of potentially tighter than anticipated fundamentals, we are more gravitated towards our high case scenario, which was published on December 8, 2017, for Brent at $66.2 per barrel and West Texas Intermediate (WTI) at $63.2 per barrel in 2018." Last month, JP Morgan had projected crude oil price central scenario at $60 for Brent oil and $54.88 per barrel for WTI. This means JP Morgan's price upgrade is almost 10 per cent.

Joel Hancock, an oil analyst at Natixis Commodities Research, said, "We have revised up our Q1 2018 Brent forecast to $63 (average of period), taking into account the higher prices at the start of the year. Brent is expected to average $64.5 over 2018. We expect WTI to average $58 in Q1 and $60.3 over 2018 as a whole."

FocusEconomics, an economic and market research and data providing agency, conducted a poll of its economists. It said, "The current upward trend in oil prices translated into eight panelists revising up their estimates for Q4 2018 from the previous month. Sixteen forecasters kept their projections unchanged, while no panelists cut their forecast. Although our panel largely believes that Brent oil prices will remain at high levels towards the end of this year, on an individual basis, they foresee some volatility going forward. The panelist forecast range for Q4 2018 runs from a maximum of $87.6 per barrel to a minimum of $52.0 per barrel."

There are six major reasons attributed to why the rally will continue.

JP Morgan cites five reasons: Stronger economic fundamentals; synchronising global economic growth and continued geopolitical tensions; significant increase has been seen in crude oil demand due to extremely cold weather in North America, which will keep prices of Brent crude oil higher; the OPEC is very likely to cut short the OPEC-NOPEC deal by mid-2018 if markets are balanced as their target five-year OECD inventories average currently stands at just 79 million barrels in surplus. Apart from this, Natixis adds that the speculative positions in Brent are at a new record high on CFTC.