Market research

BMI, the research unit of Fitch, said in a report on May 29 that following the Organization of the Petroleum Exporting Countries (OPEC) meeting on May 25, the focus of the market will shift to fundamental data (supply and demand figures) and this factor will drive benchmark prices over the coming period. “Markets were underwhelmed by the May 25 OPEC decision to extend the production limitations for nine months, with expectations of deeper intervention not met. In our view, the disappointing impact of the production cut over the early part of 2017 will drive more caution in managed money positioning, with a deeper focus on fundamental data,” it said. BMI said that monitoring inventory data from key global storage hubs will show how successful the deal was. “Both the drawdown of stocks below 2016 levels and further reductions to the five-year average, as well as the aggressiveness of stock draws over 3Q 2017 will be price supportive,” BMI added.
Goldman Sachs
In a report on May 30, the US bank lowered its forecast for the two global benchmarks Brent and West Texas Intermediate (WTI) for 2017, while it kept its forecast unchanged for the next year. For Brent, the bank cut its forecast in 2017 to $55.39 per barrel from an earlier forecast of $56.76. It kept the 2018 Brent forecast unchanged at $58. The WTI forecast for 2017 was lowered to $52.92 per barrel from $54.80. The WTI forecast for 2018 was unchanged at $55. In a separate note dated May 25, Goldman Sachs said that OPEC has still some challenges to tackle after the decision it took to cut output for another nine months. The decision itself will achieve its stated goals and lead to “a normalization in (member countries of) the Organization for Economic Co-operation and Development’s (OECD) inventories by early 2018, even with gradually declining compliance,” the bank’s analysts including Damien Courvalin wrote in the note.
Emirates NBD
The UAE-based bank said in a note on May 28 that one of the key successful results of the OPEC meeting on May 25 was the “extraordinary level of constructive oil market diplomacy that currently exists between OPEC members and their partners.” The bank noted, however, that the extension of the OPEC deal for another nine months may not be enough to eliminate an oil surplus next year as producers from outside the deal like the US, Canada, and Brazil will raise production enough to push the market back into surplus and lead to growing inventories once again. “We doubt that OPEC producers would be prepared to keep cutting production to accommodate alternative producers and consequently keep giving up market share, meaning a renewed existential decision of prices vs. market share will come back to the fore in 2018,” it said. Demand will grow in 2018 by a healthy margin of 1.4 million barrels per day (bpd), “but even that is not enough to keep the market from staying in a deficit if OPEC and its partners resume production growth.”

Source: Arab News