Abu Dhabi: Tensions between the US and Iran, and a decline in the global surplus, are likely to impact oil prices in the coming months, but oil prices are unlikely to go beyond $60 (Dh220) per barrel, analysts said.
Crude oil recovered strongly last week in response to upbeat comments from Opec about the successful reduction in the global supply glut as well as due to near-record Chinese imports and US-Iran tensions.
Brent futures gained 92 cents, or 1.6 per cent, to settle at $57.17 a barrel, while US crude rose 85 cents, or 1.7 per cent, to settle at $51.45 per barrel when markets closed on Friday.
“The Opec output restriction is undoubtedly helping to contain further price declines. Within the next several months, I foresee the oil price hovering within the price band of $50 to $60 per barrel if the production reduction pact continues to hold firm,” said Justin Dargin, a global energy expert at University of Oxford In London.
Opec along with other oil producers are cutting production by 1.8 million barrels per day in order to prop up prices. The agreement, which was to expire in June, was extended till March next year.
“By summer, it is likely that prices will rise above the $60 range, if Opec and its partners continue the production reduction agreement, as it tends to be advent of the summer driving season in North America,” he said.
Nuclear deal
The other factor that is likely to impact oil prices is US-Iran tensions. In a speech on Friday, President Donald Trump refused to certify Iran’s compliance with the nuclear deal raising tensions between the two countries.
“We will see an increase in the fear premium in the coming months not to a degree, yet it will be present. This is due to the opacity surrounding the ultimate intentions of the White House,” added Dargin.
Ole Hansen, head of commodity strategy at Saxo Bank said International Energy Agency sees a risk of the global inventory decline coming to a halt in 2018 in response to strong non-Opec production growth.
“These assumptions leave limited or no room for Opec, Russia, and other members to adjust lower the current production cap agreement once it expires next March,” he said.
The IEA sees non-Opec production rising by 1.5 million barrels per day in 2018, slightly more than its global demand growth forecast of 1.4 million barrels per day.
“Overall our view remains unchanged that the upside to oil at this stage, barring any geopolitical event, remains limited above $60 per barrel. Opec and Russia will need to extent the deal to curb production beyond March in order to be successful in their quest of balancing the market.”