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Oil price forecast revised lower (Brent: USD 50/bbl year-end 2016, USD 60/bbl year-end 2017)
Outcome OPEC meeting end of November remains uncertain; oversupply to remain somewhat longer?
Gas- and electricity prices elevated due to supply constraints
Figure 1: Oil price peaks and enters neutral phase (x Oil price forecast revised lower
USD/bbl) We revised our oil price forecasts lower. In recent weeks, the oil price
already fell under pressure due to several reasons. First, uncertainty
55 increased surrounding OPECs intention to cut its crude production to
only 32.5/33.0 mb/d at its official meeting on 30 November. Second,
50 the US dollar appreciated significantly. Third, the US crude oil industry
seems to benefit from the election of Donald Trump as the next US
President. This may keep the oversupply in the oil markets in place for
45
somewhat longer.
40 OPEC uncertainty
Ahead of the OPEC meeting in Vienna on 30 November, many oil
producing countries have increased their oil production. Possibly trying
35
to position themselves for the negotiation on how to implement and
divide the intended production cut among OPECs members. Although
30 reaching a successful deal is not impossible yet, the higher production
levels do not facilitate the upcoming negotiations.
25
jan feb mrt apr mei jun jul aug sep okt nov We estimate the possibility of an actual OPEC production cut as 50-50.
On one hand side, several OPEC countries, including Libya, Nigeria,
Brent WTI
Venezuela, Iraq and Iran indicated that they are not intending to lower
Source: Thomson Reuters oil production for several reasons. Perhaps even Saudi Arabia has some
mixed feelings about cutting oil production for economic reasons.
However, after the failure of the Qatar meeting earlier this year, the new
Saudi oil Minister would like to show the market that OPEC / Saudi
Arabia is still in control and is willing to stabilise the oil markets.
Nevertheless, the proposed 32.5/33.0 mb/d production ceiling is
significantly higher than the previous ceiling at 31.5 mb/d. So, even if
OPEC members can agree on a production ceiling at 32.5 mb/d, it
basically formalises the rise of OPEC production seen during the first
half of 2016. This fits a scenario in which the global demand for oil
continues to rise, as long as the net oil production in non-OPEC
Table 1: Oil and gas price forecasts ABN AMRO (oil countries remain flat or lower.
prices in USD/barrel, HH in USD/mmBtu, TTF in
EUR/MWh)
There is a possibility that OPEC surprises the market with a (bigger than
Price Q4 2016 Q1 2017 Q2 2017 2016* 2017*
expected) production cut. In fact, at this point, any type of agreement
Brent 50 50 55 45 55
would surprise the market. And if OPEC would stick to its intention to set
WTI 50 50 50 45 55 its production ceiling at 32.5 mb/d (or even lower), market optimism will
HH ** 2.80 2.70 2.50 2.50 2.70 likely pick up, which could be supportive for oil prices. However, such a
TTF *** 18.00 16.00 15.00 14.25 14.50 scenario does not seem very likely, and even if such a deal would be
reached, we expect the effects to be only temporary. After all, the
Source: ABN AMRO Group Economics relative level of OPEC production will remain around record levels.
* Annual average ** Henry Hub *** Title Transfer Facility Furthermore, global inventories are still high. Finally, global demand is
only changing slowly (moderate gains), and so is global supply (drop in
production of non-OPEC countries is not as strong as expected). The
effects on oil prices would therefore be limited, as long as speculative
2 Energy Monitor November - Oil price rally delayed 16 November 2016
60.000 40.000 All these uncertainties are pointing to the direction of an extended period
59.000 39.500 of oversupply in the market. Higher yields in the US, a cap on global
production growth and the continuous growth of crude demand however,
58.000 39.000
will bring the supply/demand towards an equilibrium in the course of
57.000 38.500 2017. Therefore, we maintain our forecast of a higher oil price in 2017
56.000 38.000 and 2018. Nevertheless, we expect the oil price recovery to take
somewhat longer (peak in 2018) than we initially expected, and will be
55.000 37.500
less strong than anticipated earlier. See Table 1 for our new price
54.000 37.000 forecasts.
53.000 36.500
Prices of gas and electricity found support in France
52.000 36.000 Recently, prices of coal, gas and electricity gained significantly as a
51.000 35.500 result of supply related issues in France. Due to a series of unexpected
closures of French nuclear power plants, uncertainty rose about a
50.000 35.000
mrt aug jan jun nov apr sep feb jul possible shortage on the European power market this winter. The
13 13 14 14 14 15 15 16 16 company of lectricit de France (EDF), owner of the French nuclear
power plants, was forced by the French Autorit de Sret Nuclaire, or
Total Non-Opec Total OPEC
ASN, to close 20 of its 58 reactors for maintenance and/or inspection.
Source: Energy Intelligence The power production dropped to the lowest level in 18 year according
3 Energy Monitor November - Oil price rally delayed 16 November 2016
to the power provider RTE. And although EDF indicates that it can
Figure 4: TTF prices show a strong recovery in recent
months (x EUR/MWh) restart most of these power plants before the end of the year, the market
is less convinced. As a result, France would be forced to import a
30 significant amount of power from surrounding countries, mainly
Germany. And since Germany is coping with a period of relatively
limited wind power in the Northern part of the country, most of this
25
power must come from the German coal plants. A rising demand for
coal and gas triggers a higher carbon price, which is translated into a
20 higher power price as well.
Group Economics
Commodity Research team
Jacques van de Wal (Head) tel: +31 20 628 0499 jacques.van.de.wal@nl.abnamro.com
Hans van Cleef (Energy) tel: +31 20 343 4679 hans.van.cleef@nl.abnamro.com
Casper Burgering (Ferrous, Base metals) tel: +31 20 383 2693 casper.burgering@nl.abnamro.com
Georgette Boele (Precious metals) tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
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