AN investment bank has cut its medium term forecast for the crude price in spite of increases in the cost of the black stuff following moves by Opec countries to cut production.
Bank of America Merrill Lynch reckons Brent crude will sell for an average of $50 per barrel to $70/bbl between 2017 and 2022.
In the forecast issued in February last year, the bank had predicted the Brent price would average $55/bbl to $75/bbl in the medium term.
The change in the estimate may come as a surprise following the improvement in market conditions in recent months. Brent crude has increased from less than $30/bbl in January last year to around $56/bbl, helped by the decision by Opec to curb output from January to support the market.
It fetched $110 per barrel in June 2014.
The recent price increase has provided some respite for firms in the North Sea. Firms have slashed spending amid the downturn that began in 2014, after production grew much faster than demand.
However, specialists at Bank of America Merrill Lynch highlighted the possibility the effect of the Opec cuts could be weakened by producers in shale areas of the US ratcheting up production to capitalise on any price increase.
in a global research paper, they noted firms had managed to slash the cost of producing from shale in response to the crude price plunge.
“Shale technology remains a major deflationary force for global petroleum prices,” the paper states.
It adds: “Looking into 2018 and beyond, Russian oil production growth could well start to accelerate again, particularly if additional greenfield projects are added to an existing robust pipeline.”
The bank expects demand for oil to increase globally, with emerging markets leading the way.
However, other downside risks to the crude price include the possibility of global trade being impacted by a hard Brexit and by protectionist moves in countries such as the US.
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