Qatar National Bank (QNB) has revised its oil price forecast to average $44.7 per barrel in 2016, up from its previous forecast of $40.8/barrel, state news agency QNA said on Saturday.
In its monthly market update, QNB said rebalancing in the oil market has been “stronger than expected”. Continued rebalancing is expected to lift prices to an average of $55/barrel in 2017, up from a previous forecast of $51.3 in 2017 and $57.9 in 2018.
The revised forecast is based on rising demand growth – the International Energy Agency (IEA) expects global demand growth to reach 1.4 million barrels per day (bpd) this year, up from a previous forecast of 1.2 million bpd, QNB said.
Stronger demand growth is driven by emerging markets, especially China and the rest of emerging Asia. Demand from Europe is proving to be resilient, too, despite increased uncertainty following the Brexit vote.
This additional demand should help clear some of the excess supply in the market, estimated by the IEA to be 1.7 million bpd in 2015.
Meanwhile, on the supply side, said QNA, high-cost oil producers in the US have been steadily reducing their output since April 2015. US production is expected to fall by 0.5 million bpd in 2016, according to the IEA, and other producers in non-OPEC countries such as China and Colombia are also forecast to reduce their output in 2016.
Offsetting this is additional Iranian production following the lifting of sanctions in January, while other OPEC countries are expected to increase their production this year to compete for market share.
However, the overall increase in supply is expected to be moderate and oversupply in the market is expected to be reduced to 0.4 million bdp leading to oil prices averaging $44.7/barrel in 2016, QNB said.
Remaining excess supply is expected to be “completely eliminated” by 2017, because additional demand – expected to reach 1.3 million bpd next year - should be enough to absorb all remaining and new supply.
QNB said: “When markets are over-supplied and prices fall, they tend to adjust through two channels. First, high-cost producers tend to exit the market as their businesses become unviable. Second, low prices encourage higher consumption which provide support to prices.
“These dynamics are currently underway in the oil market and are progressing in faster than previously thought.
“This does not mean a return to a world in which oil prices exceeded $100/barrel for several years, but a price of $60/barrel is probably within range in the medium term.”
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