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Oil: Gain in prices may have run out of steam – Rabobank

The OPEC agreement to reduce production has succeeded in bringing down excess oil inventories, which has now hit a low since late-2014, explains the research team at Rabobank.

Key Quotes

“Throughout most of 2017H2 and early 2018, this reduction of excess supply has pushed oil prices from USD 45/bbl to around USD 65/bbl.”

“However, the gain in oil prices may have run out of steam. First off, the higher prices get, the larger gets the risk of non-compliance with the OPEC agreement – though countries have been surprisingly compliant to date. Additionally, the accord may actually backfire as the higher prices are also drawing new suppliers to the market. According to the IEA, oil production is getting back to “extraordinary” growth rates again. A large part of this can be attributed to US shale producers, as the IEA predicts US oil production to increase by 1.3 million barrels per day. That could lead the US to overtake Russia as the world’s largest oil producer by the end of the year. An unphotographable Kodak moment?”

“So despite a growing demand for oil –on the back of the continuing economic expansion– we don’t see oil prices continue their upward trend.”

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