Jadwa Investment maintains a cautious outlook on oil prices in its latest quarterly oil market update, forecasting a full year price of US$44/bbl for 2016 and US$55/bbl for 2017
“Although oil prices seemed to have bottomed out since the beginning of the year, we remain wary of prices perhaps moving too fast, too soon,” the report comments. Its forecast is based on three key areas, it says - the swift return of recent out outages, a rebound in shale production and continued higher volatility levels in oil prices.
The report notes that oil demand growth is still slightly below the average of the previous five years, but this is before the potential longer term impact of any ‘Brexit’ affect has been absorbed, whilst supply from Russia and OPEC remains close to record highs seen at the turn of this year. Commercial crude stocks are still above their long term average, and are expected to keep rising until mid-2017, whilst continued competition between major oil producers is keeping markets well supplied.
‘Brexit’ had a relatively modest impact on the oil markets, the report notes, with Brent slipping back slightly below US$50/bbl immediately following the UK’s decision to leave the EU. However the effects over the longer term are less clear, with a worse-case scenario being a global contagion effect resulting in increased volatility in global oil and financial markets. “Ultimately the impact on regional and global demand is not easy to calculate and will only be determined once the consequences of ‘Brexit’ have been fully realised in the weeks or months ahead,” the report comments.
Jadwa Investment forecasts limited rises in OPEC production to the end of 2016, with Iranian production currently close to its pre-sanctions output and some downside risks from other OPEC members.
Commenting on Saudi Arabia, it notes that the Kingdom has maintained its global market share in crude oil exports despite intense competition, while also expanding exports of refined oil products. In the remainder of 2016, increases in gas production are likely to free up more crude oil to be used to increase either crude oil exports and/or higher value refined products, the report predicts. Looking further ahead into 2017, Jadwa Investment forecasts that the Kingdom’s position as the only major oil producer with spare oil capacity and its reputation as a reliable supplier, coupled with its expanding downstream portfolio, could result in a rise in production, should markets tighten.
