Oil price rise expected after OPEC deal

Latest oil-producing country cuts in production expected to push global crude prices higher in the first half of 2017.

OIL & THE ECONOMY

Oil price rise expected after OPEC deal

Level unlikely to hit $100, analysts say
14/12/2016
Yuthana Praiwan & Apornrath Phoonphongphiphat

The latest bid by oil-producing countries to cut production is expected to push global crude oil prices higher in the first half of 2017, according to analysts and fuel retailers.

But prices are unlikely to revisit the US$100-a- barrel level because underlying risks will weigh on prices, they said.

OPEC-OIL EXPORTER DEAL TO PUSH PRICES HIGHER

The Middle East- dominated Opec group and other exporters led by Russia reached a deal last week to cut output by nearly 1.8 million barrels a day to reduce oversupply and prop up prices.

That has broadened forecasts for average oil prices next year to $55-$60 a barrel, up from a reading of $45-$55 before the latest production cuts.

Some experts forecast the global oil surplus to fall by half from the current oil glut of 300 million barrels.

That should help push oil prices higher in the first half of next year, according to energy analyst Manoon Siriwan.

KEY QUESTION: WILL ALL MEMBERS COMPLY WITH SUPPLY-CUT DEAL?

"But we need to monitor further whether the agreement to cut production will be seriously implemented by all members, as there could be unexpected political and economic circumstances that would force some members to fail to comply with the deal," he said.

"And that would keep global oil prices from rising as planned."

He referred to some defiant Opec members such as Iraq, Iran, Nigeria and Libya, which could ignore the deal due to their economic difficulties, forcing them to produce more oil in order to gain more revenue.

PREPARE FOR RISING COST-OF-LIVING

"However, what we will see for sure is rising oil prices pushing production costs up and finally leading to rising living costs (cost of living)," Mr Manoon said.

"The government should be well-prepared to deal with such an eventuality."

Rising oil prices will mean certain stock gains among Thai oil companies that would offset oil stock losses during the time that global oil prices collapse, the analyst said.

"It is unlikely to help increase sales or revenue immediately for those oil companies," he said.

"However, it will offset previous losses and make their accounts heftier."

MORE OIL RESOURCES TO RESUME PRODUCTION WITH PRICE RISE 

Furthermore, rising oil prices are expected to encourage oil sands and suspended conventional oil resources and unconventional oil resources to resume production.

Mana Nimitvanich, an analyst at Kasikorn Research Center, said he expects shale oil and gas production to help pare gains in global oil prices and weigh on prices to stay around $50 a barrel in the first half of 2017.

That would mean more volatile oil prices next year, making Thai oil companies more cautious about their operations.

$50 TO $60 A BARREL PREDICTIONS, NO ONE PREDICTING $100 A BARREL

Most oil retailers expect the global average oil price to stay somewhere slightly above $50 a barrel, with some optimistic companies eyeing $55-$60 a barrel.

No one is on record as saying the price will rise to $100 a barrel.

PTT, Thailand's national oil and gas conglomerate and biggest fuel retailer, said it expects the price to remain higher than this year's level but not revisit record highs above $100 a barrel.

IF PRICE RISES TOO MUCH, NEW SUPPLY SOURCES WILL DAMPEN PRICE INCREASES 

If the price rises too much, then suspended conventional oil resources and unconventional oil resources may resume production after being put on hold for almost two years.

That would prevent prices from rising substantially further.

"The high crude oil price on Monday that reached nearly $55 will soon start to decline," Mr Auttapol said.

He said PTT is monitoring the oil price closely this week but will keep its estimate of average oil prices next year unchanged at $50-$55 a barrel.

"If supply falls short of demand, I think some non-Opec countries may start production," he said.

http://www.bangkokpost.com/business/news/1158917/cut-in-output-to-push-up-price-of-oil

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