Oil: Remain wary on the 2017 outlook for prices - Natixis

Abhishek Deshpande, Research Analyst at Natixis, remains wary on the 2017 outlook for oil prices as the situation is finely pivoted on the level of compliance from OPEC and certain non-OPEC countries to their agreed adjustments.

Key Quotes

“Based on preliminary indications, we expect a high level of compliance similar to the 2009 scenario.”

“Demand drivers have both upside and downside potential from price elasticity effects and a potential increase in annual global GDP growth on industrial production.”

“Other than the question of production cuts, the reaction from non-OPEC supply, in particular US upstream, could bring the market back into surplus in 2017Q4 momentarily.”

“In our low case scenario where compliance is poor at 50%, we could see stock builds significantly higher. Though this should still be lower than the 2016 average of around 500,000 b/d, the market expectations currently range from a small build to withdrawals for 2017. This could fill up storage capacities worldwide very quickly and we could see significant pressure on oil prices leading to further volatility in 2017.”

“We forecast Brent to average $64.5/bbl in 2017. However, in the case of poor OPEC compliance, we could be gravitating towards our low case scenario of around $52/bbl on average in 2017 for Brent if not lower.”