Heading into 2018, a number of big banks raised their 2018 oil prices forecasts. As usual, among the most bullish is Goldman Sachs. The bank raised its 2018 oil price forecast by 7 percent from $58/bbl to $62/bbl. Other banks such as JPMorgan, Credit Suisse, and UBS have also raised their 2018 oil prices forecasts.
Looking at the above mentioned banks’ forecasts, it seems that the main reason for raising their oil prices forecasts for 2018 is the stronger-than-expected commitment from OPEC and other non-OPEC countries to continue with their oil output cut through 2018 aimed balancing the oil market.
While the recent OPEC/non-OPEC decision to extend their oil output cut through 2018 is a positive sign, a solid forecast should not ignore the role shale oil production plays in setting the direction of oil prices and the risk it poses to oil prices in 2018.
Since OPEC decided to cut its output back in November 2016, U.S. crude oil production has increased by more than a million bbl/day from 8,697,000 bbl/day back in November 2016, to 9,754,000 bbl/day today. This increase in oil production happened while oil prices where between $40/bbl to $55/bbl. With oil prices now up around $60/bbl, U.S. oil production touching a 10 million bbl/day will not take long.
Trying to predict what 2018 holds for the oil and gas industry, and where oil prices will be in 2018, one should answer the following questions:
1- How fast U.S. crude oil production will increase at the current oil price level ($60/bbl)?
2- How long OPEC/non-OPEC can continue extend their oil output cut while they see U.S. shale oil production growing?
3- How far Saudi Arabia is willing to go to support the oil price and risk its market share?
4- What about supply growth from other countries?
5- Will U.S. crude inventories continue to fall or reverse direction?
