Despite the OPEC agreement, the oil prices are likely to be $55 a barrel in the second quarter of the 2017, says Chief Economist Dr. Paul Wetterwald.
In Indosuez Wealth Management’s Analysis and Asset Allocation: Markets and Investment Solutions report for Q3 2017, he maintained that the reduction in world stocks will be slow, and we are making a slight revision to our forecasts for 2017, with a ceiling of USD 55 a barrel (WTI) and a floor of USD 40.
“Despite the renewal (for a nine-month period) of the OPEC agreement on 25 May and the fact that the terms of the agreement are respected by a historically large share of countries, the WTI price contracted a further 15% in second-quarter 2017. Paradoxically, the signing of the agreement was followed by a drop in the oil price.
“The correction can be ascribed in part to developments in the United States, where stocks turned out to be higher than planned and production and the number of active wells are on the rise. This last figure grew from 665 in first-quarter 2017 to 927 in June.
“Current US production is estimated at 9.33 million barrels a day, compared with 8.77 million in fourth-quarter 2016. It should also be noted that Libya and Nigeria – neither of which is party to the agreement – have increased their production.
“On the demand side, the International Energy Agency has recorded a recent weakening but considers the trend as transitory, stemming notably from the shock waves generated by monetary reform in India. For 2017 as a whole, demand is expected to increase at the same pace as in 2016, or 1.3 million barrels a day. Demand is expected to continue to rise in 2018, the increase reaching 1.4 million barrels a day.”
“The June meeting of the US Federal Reserve, the outcomes of which were a rise in the Fed Funds rate and a less conciliatory message, weakened the price of gold. This is not a new development, as gold is generally negatively impacted by stronger expectations of an increase in US key interest rates.
“On the other hand, the continued decline in gold mine production in 2017, resulting from a lack of investment in previous years, will serve to sustain gold prices. From a technical analysis standpoint, we are currently in a bull channel and are testing the low limit of this last. If the gold price manages to remain in this configuration, it is expected to move back up to USD 1,300 to USD 1,500 an ounce.”