Supply discipline and demand to prop up oil prices in 2018

Supply discipline and demand to prop up oil prices in 2018

North Dakota's booming oil business has quickly ran up against a serious shortage of housing for the thousands of workers who have poured into the state looking to cash in on the Bakken oil formation that has made North Dakota the second-largest oil-producing state after Texas.

"The tug-of-war between OPEC and the US will continue to pressure oil from trading above $60 a barrel in 2018", said Kim Kwangrae, a Seoul-based commodities analyst at Samsung Futures Inc.

"The key driver for the oil market this year has been that the OPEC and Russian production cuts were introduced, complied with and extended", said Ric Spooner, a Sydney-based analyst at CMC Markets.

"Market participants expect OPEC to extend the production cuts beyond March 2018 and stocks to decline further", analysts at Commerzbank said, noting, however, that "the higher price level should lead to a further rise in US shale oil production".

The rise saw WTI hitting its highest level since June 2015 on the final trading day of 2017.Brent crude futures - the worldwide benchmark for oil prices - were also up, rising 33 cents or 0.5 percent to $66.49 a barrel.

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Earlier in the week, Brent rose to $64.65 a barrel, its highest since June 2015, and WTI rose to $57.92, its highest since July 2015. Since the start of the year, Brent and WTI have risen by 17 and 12%, respectively, although the price rises from mid-2017 are much stronger, at almost 50%.

US production is expected to rise to 9.2 million barrels per day (bpd) in 2017 and a record 10.0 million bpd in 2018 from 8.9 million bpd in 2016, according to federal energy projections this week. Inventories excluding the nation's strategic reserve have declined more than 11 per cent in the a year ago.

OPEC and Russia's efforts to curb oil output, combined with forecasts for strong global demand growth, are expected to keep crude prices close to US$60 a barrel in 2018, a Reuters poll of analysts showed.

Trading was typically thin at year end, with many traders on vacation.

Strong OPEC compliance with the supply pact should lend support to prices, analysts said. The cuts started last January and are scheduled to cover all of 2018.

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