Average oil price in 2017 to hover around US$61/bbl, gas at US$3.50/mBtu

Brent oil is expected to average US$61/bbl in 2017, peaking at US$70/bbl during the US driving season while WTI’s average is forecast at around US$59/bbl, according to the latest report by Bank of America Merrill Lynch (BoAML).

This follows last week’s OPEC announcement to cut crude production by 1.2Mbpd with non-OPEC producers supplying an extra 0.6Mbpd. “This joint curb is a first since 1998 and in our view marks a clear turning point. It will likely tighten global oil market balances as soon as 1Q2017. Thus, we see a deficit of 560k b/d on average in 2017,” according to the bank’s analysts. It is expected that Saudi Arabia and other GCC countries will reduce production in line with the agreement, but Russia and others are predicted to keep cuts to a minimum.

In the natural gas market, the US natural balance is tightening rapidly on falling output and strong structural demand growth, particularly from LNG export facilities. Not until the late 2017 production is expected to rise again as a large number of pipelines under construction face building delays. Gas prices are expected to be at US$3.50/mBtu in 2017 and largely hold at this level in 2018. “As a high point target, we believe US NYMEX HH nat gas prices could briefly break US$5/MMBtu this winter under slightly colder-than-normal weather,” adds BoAML.