More draws predicted for late 2017, 2018
The oil market rebalancing is in progress, even if it is slower than expected, according to releases by Societe Generale and RBC Capital Markets.
When OPEC first agreed to cut production in November, it was hoped that six months of reduced production would be enough to rebalance the oil market and draw down inventories.
However, according to Societe Generale OECD crude and product stocks at the end of April were 56 MM barrels higher than at the end of December. OPEC was essentially forced to continue cuts, which were agreed to in late May.
Societe Generale reports that if cut compliance is maintained, oil stocks will begin to decrease in the rest of the year. Global oil demand is projected to grow by 1.3 MMBOPD this year and in 2018. This increased demand, combined with decreased output from OPEC, means that the implied drawdown is 0.6 MMBOPD in 2017 and 0.5 MMBOPD in 2018.
Both years will see most drawdowns in the second half of the year.
According to RBC, inventories are already decreasing, though it may not be obvious. Total OECD oil stocks are about 280 MMBO higher than the five-year average currently. However, this is primarily due to the U.S. American stocks account for nearly 70% of the excess in storage currently. This situation has led RBC to predict that the U.S. will be the last major region to rebalance. However, RBC does anticipate that stocks will eventually balance out, probably in mid-2018.
Both firms have decreased their predicted oil prices as a result of the slow drawdown on global inventories. Societe Generale expects WTI to average $53.80 in 2017 and $57.50 in 2018. RBC sees similar WTI prices, predicting $53/bbl in 2017 and $59/bbl in 2018.
After this prices will rise over the next few years to $75/bbl, as the need for investment in major projects requires increased pricing, according to Societe Generale’s analysis.
