The price of crude oil almost uninterrupted moves upward since the beginning of December 2017, gaining an increase of about 13%. The futures of the Brent variety almost approached the level of 70 USD per barrel, even touching it for a while.
However, during the last sessions, slight downward adjustments are observed. This happens amid warnings from some analysts that the market is overestimated.
As of January 18, the US light WTI crude added 22% yoy to just over 64 USD per barrel. With Brent, the increase is 25% to 69.35 USD per barrel.
Since the prices of oil futures have slipped from record levels over the past 3 days, the analysts expect short-term prices to correct the strong upward movements they have made over the past two months. Despite a strong start in 2018 and market being dominated by buyers, the upward trend in prices may slow down its accelerated growth rates and adjust it by 5-7 USD per barrel in the next two months. Some analysts even predict more serious correction of over 10 USD per barrel in short-term, mainly because of restarting pipelines and growth in US reserves. Currently there are no fundamental factors driving prices above 70 USD per barrel.
Positive news has already accounted by the market and the likelihood of price correction is growing. In the second quarter there will be a stronger build-up of oil stocks, including in the US when consumption is declining. This will lower the price in the middle of the year.
In the second half of the year is planned also the IPO of Saudi Aramco. The government of the largest OPEC producer will benefit from a high oil price during the privatization.
Meanwhile, OPEC has raised its forecast for oil supplies from countries that are not members of the cartel. On such background, the higher oil prices are currently only stimulating US shale oil producers, overshadowing the OPEC’s efforts to control excessive production.
The organization raised its forecast for delivering oil from non-cartel countries by 160,000 barrels per day, or 16%, to 1.15 million barrels per day.
The total volume of global production increases by 42,000 barrels per day to 34.42 million barrels per day.
Earlier this week, large investment banks increased their oil price forecasts as they believe global economic growth and declined OPEC production will affect the reserves.
In the long-term, the intensified global demand, growing geopolitical conflicts, and the continuing decline in global oil reserves will put pressure on oil prices positively. The OPEC quota deal is expected to be in force for most of 2018, but a potentially larger-than-expected reduction in world oil stocks may be revised at the mid-year meeting in Vienna that would slow the pace of price growth.