Bullish forecast for oil prices as Opec decides to raise output

Abu Dhabi: Oil could increase by two dollars a barrel in the short term due to uncertainty surrounding the decision taken by the Opec and its allies to increase production by one million barrels per day, analysts said.

Opec (Organisation of the Petroleum Exporting Countries) and non-Opec members like Russia agreed to increase production at a meeting in Vienna on Friday and Saturday but did not provide a specific number on how much production hike they are targeting in the coming months. Saudi oil minister Khalid Al Falih said that the increase should be close to one million barrels per day.

Opec and non-Opec members have been cutting output by about 1.8 million barrels per day since January 2017 to help lower global oil inventories and support oil prices with a high level of conformity recorded among the participating countries to the agreement.

“There is uncertainty on how the deal will materialise in the next one to three months. In the short term it means a little bit upward for oil prices and in the longer term for the next six to nine months, it means downward for oil price because of more oil coming to the market,” Jaafar Al Taie, managing director of Manaar Energy group told Gulf News over the phone.

Explaining further, he added that there could be two dollars upward movement in the next one to three months because of the uncertainty and two to three dollars downward pressure once things become clearer on the number of barrels entering the market.

“Either way, it is not going to be a big impact as Saudi Arabia and the UAE do not want to have a big impact. They are trying to avoid wide fluctuations in the price of oil.”

Nominal figure

Speaking about the changes to the Opec agreement at the Vienna meet, he said one should pay attention to spare capacity.

“Saudi Arabia is going to give a nominal figure of may be one million barrels but the real production increase in the next six months to one year will be in the area of about 500,000 to 700,00 barrels per day because that is the limit of spare capacity Saudi Arabia, Russia and the GCC have.”

“In this deal, Saudi Arabia has got to please everybody. Iran does not want to see a big production increase and Iraq does not want to see a big production increase. So they have to increase production and hold production at the same time.”

He also said the US would be very happy with the current price range but India would like to see oil in the rage of $50 (Dh183.50) per barrel because of the impact on its economy.

“President Trump does not want prices too low and he does not want prices too high because if prices are too low it would hurt shale oil industry and if they are too high it will hurt the US consumers. India on the other hand would like to see oil price in the range of $50 per barrel but can live with the current price range.”

Both India and the US voiced concern over the higher oil prices in recent times and urged Opec to increase production so that growth of their economies is not hurt.

Pressure

International benchmark Brent was trading at $75.55 per barrel, up by 3.42 per cent when markets closed on Friday. US crude West Texas Intermediate was up by 4.64 per cent at $68.58 per barrel.

Ole Hansen, head of commodity strategy at Saxo Bank predicts Brent crude oil over the coming months to remain rangebound between $71 per barrel and the low $80s before downside price pressure begins to emerge ahead of the year-end and into 2019.

“Saudi Arabia and Russia seem to have drawn a line at $80 per barrel as being the level above where they fear that demand destruction could emerge,” he said in a note.