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Bullish forecast for oil prices as Middle East tensions rise

Current prices will incentivise US producers to increase production

Gulf News

Abu Dhabi: Oil prices are expected to rise further due to geopolitical tensions in the Middle East and a drawdown in the global oil inventories, analysts said on Sunday.

“Increased geopolitical risk is certainly going to be a bullish factor for crude prices in the near term even if there is little direct impact to oil production from the US strikes on Syria,” Edward Bell, commodity analyst from Emirates NBD told Gulf News.

Western powers led by US fired as many as 105 missiles against Syria to dismantle its chemical weapons programme over the weekend, raising concerns about a potential supply squeeze in the region should the conflict blow out of proportion.

Brent, the global benchmark, was trading at $72.58 (Dh266) per barrel, up by 0.78 per cent, and the West Texas Intermediate was at $67.39 per barrel, up by 0.48 per cent, when markets closed on Friday.

“Prices may have more to go in the current market conditions as the strikes are occurring just as the IEA (International Energy Agency) affirmed that Opec has more or less achieved its objective in drawing down global inventories,” he added.

Oil producers led by Saudi Arabia and Russia are cutting production by about 1.8 million barrels a day in order to help lower global oil inventories and prop up prices under a deal that is to expire at the end of 2018. Oil prices have risen substantially since the agreement came into effect early last year.

Compliance

Echoing similar views, Benjamin Lu, commodity analyst from Phillip Futures in Singapore said the markets have been extremely bullish on prices due to a glowing Opec (Organisation of the Petroleum Exporting Countries) report on oil fundamentals along with escalating tensions in the Middle East.

“Opec reports have demonstrated for robust levels of compliance within the preset production parameters,” he told Gulf News adding that OECD (The Organisation for Economic Cooperation and Development) commercial stock levels have declined and are currently standing at 43 million barrels above the 5 year average.

“A revision in forecasted global oil demand levels have kept prices up too for most of the week.”

He, however said that current prices will incentivise US producers to increase production and put pressure on oil prices.

Rig count in the US has gone up by five to 1,008 rigs last week, according to a weekly report from Baker Hughes, a GE Company.

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