An output freeze among Opec members and Russia will not boost oil prices significantly, the Economist Intelligence Unit (EIU) said yesterday.
But a combination of faster global economic growth and a drop in production brought on by years of low oil prices will push Brent crude upwards in 2017, according to EIU, which is the research and analysis division of the Economist Group.
In its global forecast for 2016-21, EIU said that while the prospect of a freeze had increased recently, a deal is still some way off as Saudi Arabia and Iran are in “no rush to act”.
The report’s authors said that even if a deal could be agreed later this year, there would not be a big impact on Brent crude, which yesterday sat at $46 a barrel.
They said there was a risk the deal would not be implemented properly by some of the players.
Furthermore, as several Gulf oil exporters and Russia are already producing at close to record levels, a freeze would only lock in these elevated rates of output, which would do little to reduce to global stock overhang, they said.
But prices will rise in 2017 and throughout the first half of 2018, as consumption is expected to exceed production for the first time since 2013.
The report’s authors said: “This will reflect both slightly faster global economic growth, which will underpin oil usage, and the negative impact on output of several years of low prices. We forecast that Brent will climb to an average of $54 in 2017, from a revised estimate of $44 in 2016.
“The global oil market will remain in deficit in 2018, pushing prices up further.”
“However, we expect the rally to lose steam in the second half of that year, as slower GDP growth in China − and a much lower rate of investment − will take its toll on oil consumption growth in what will then be the world’s biggest importer.”
Brent will average $64 in 2018, the report said.
EIU said it expects a political compromise to be agreed in Libya, which will get the country’s oil production going again and cause supply to exceed demand in 2019.
“We expect Brent to edge down to an average of $62 in 2019 and $61 in 2020. Oil prices will then edge back up again in 2021, to $64,” the report said.
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