Fitch forecasts bumpy ride for oil prices

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Ratings agency Fitch has cast doubt on OPEC’s ability to swing oil prices for a significant period of time, saying any meaningful effect will be prescribed by the size of cuts and the willingness of members to stick to agreements.
All eyes are on Vienna, where OPEC gathers on Wednesday to decide whether to cut oil production to stabilize a market which has been battered for the past two years as prices plunged from US$100 per barrel peaks to troughs of US$28 bbl.
Fitch said high inventories and the flexibility of US shale producers to respond to any market tightening meant that oil prices were likely to flatline in 2017, before gradually recovering over the next few years.
The agency expects supply and demand to be broadly balances in the first half of 2017 with a more pronounced deficit in Q2. It cautioned that an abundance of commercial inventories could delay any significant price recovery.
Fitch maintains its base-case assumption that Brent and WTI will both average US$45/bbl in 2017 and expects the price to rise to US$55 a barrel in 2018 and $60 in 2019.
The ratings agency expects that it could take longer to realise its original long-term equilibrium price assessment of $65/bbl.
Overall, it regards future oil price scenarios as volatile with unprecedented capex cuts potentially sparking far bigger production deficits than originally expected. Demand growth could also slow if economic growth falls short of expectations, or if US shale bounces back strongly as prices rise and supply is greater than anticipated.

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