Oil rally looks set to run into 2018 if OPEC extends output deal

Oil will likely rally into 2018 with periods of volatility as an anticipated extension of OPEC-led output restrictions offsets higher U.S. production, a Reuters poll showed on Tuesday.   

Analysts raised their crude price projections, the survey showed, as expectations of an output cut extension were buoyed by comments from officials in Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries.

OPEC compliance stands above a high 80 percent currently. Brent was forecast to average $55.71 in 2018, the poll showed.

OPEC’s next meeting is in November, where the group and other producers including Russia are expected to prolong the output cuts of about 1.8 million barrels per day (bpd) beyond the current deadline at the end of March 2018.

The survey of 35 analysts predicted Brent LCOc1 would average $53.25 per barrel in 2017, up from last month’s $52.60 forecast. Brent crude futures have gained about 17 percent over the past two months and has averaged $53 this year. 

The prospect of U.S. sanctions being reimposed on Iran and tensions in Iraq where the northern Kurdish region has been pushing for independence helped push up prices, analysts said.

But some analysts said new sanctions would not lead to a substantial curbing of Iranian exports because Europe and Russia were unlikely to back them.

Analysts expect oil demand growth for the remainder of 2017 and in 2018 to average about 1.5 million to 1.7 million barrels per day, mainly driven by Asian nations such as China and India.

A rise in oil prices could encourage higher U.S. shale output, which has widened the gap between WTI and Brent futures.        

The premium of Brent to U.S. light crude CLc1 has grown to its widest since August 2015, at about $7 a barrel. CL-LCO1=R, so U.S. crude can compete more effectively in Europe and Asia.