Sproule keeps 2017 WTI forecast at $55 despite ‘short-term volatility’

​Sproule keeps 2017 WTI forecast at $55 despite ‘short-term volatility’

By Deborah Jaremko

May 8, 2017, 2:57 p.m.


oil price chart image

It’s been a bumpy ride for the price of oil in the last week, with WTI tumbling below US$44/bbl on Friday for the first time in six months.

WTI has since steadied to near US$46 as the market expects OPEC’s production cuts to be extended into 2018.

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OPEC’s actions are boosting long-term fundamentals, says Sproule vice-president Christoffer Mylde.

That’s part of why the firm has not changed its price forecast, which continues to be for WTI to average US$55/bbl for the remainder of the year.

“We think that the market continues to be driven by shorter-term speculation and sentiment rather than long-term fundamentals,” he says.

“Keeping in mind that the market is more or less rebalanced already, we expect that prices will recover towards the second half of the year.”

There are a number of factors contributing to Sproule’s forecast, Mylde says, including continued demand growth.

“There has been some talk about decelerating [global] demand growth, but we’re still sitting well above one million barrels of added consumption growth this year, which is on the long-term trend still consistent with the past,” he says, adding that demand will increase as the market enters its peak summer months.

And although there has been talk of a “second wave” of US supply growth, Mylde says a production surge similar to what was seen previously this decade is unlikely.

“US production growth is going to be somewhat limited in its ability to drive the market. We see probably no more than half a million barrels of growth coming out of the US this year, and that on its own is not going to be able to really keep pace with demand on its own.”

Access to capital is an issue for US operators, and there are limits in the resource itself at current prices.

“The growth is coming from sweet spots in key plays like the Permian, so you don’t have that same drive from all the plays like the Bakken and the Eagle Ford, which were very significant contributors in the first wave,” Mylde says, adding that the US rig count is still down considerably to about 700 currently from 1,500 at its peak in 2014.

“I think if we do have another price spike back to $70 to $80, then absolutely the US will be able to increase production further, but at $50 we just don’t see it being at the kind of levels it was in 2012-2013 where they were adding 1 to 1.5 million barrels a year.”

Mylde adds that globally about $1 trillion of capex has been taken out of the market in the next few years in terms of projects that would have otherwise come onstream.

“When you look at the longer term picture we don’t see the kind of supply scenario which lead to the downturn replay in the next few years.”

Sproule forecasts that WTI will average US$55/bbl in 2017, US$65/bbl in 2018 and US$70/bbl in 2019.




About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on May 9, 2017, in economic impact, oil, political. Bookmark the permalink. Leave a comment.

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