Next year, oil prices are likely to rise. After OPEC began the supply/demand rebalancing process, oil prices are expected to increase to USD 57 per barrel next year and to USD 62 per barrel in 2018 after being range bound at USD 45-50 per barrel since April, said Nordea Bank in a research report.

The production target of OPEC is 32.5 million barrel per day effective from 1 January 2017, corresponding to a reduction of around 1.2 million barrel per day. Every member of OPEC would be reducing production equal to 4.6 percent of its total production. Nigeria and Libya, which have been conflict hit, have been exempted from the quota system whereas Iran is permitted to raise production by 90k b/d to around 4 million barrel per day or pre-sanction levels to rebuild the nation’s economic strength.

The historical lack of compliance by many OPEC members raises the risk that a higher number of barrels than the agreed production target would reach the market and weigh on oil prices, noted Nordea Bank. Moreover, significant volumes of locked in production in Nigeria and Libya might return to the market if the political situation improves and offsets the cartel’s output.

“Non-OPEC production is expected to contract by 800k b/d in 2016 before returning to growth by around 300k b/d in 2017”, added Nordea Bank.

Global oil demand growth is likely to decelerate to 1.2 million barrels per day next year and to 1.1 million barrels per day in 2018 as changing gear in China’s economy, tighter fuel efficiency standards and reduced fuel subsidies in several non-OECD nations would begin to bite. China will continue t o drive oil demand growth; however, Indian growth is likely to accelerate in the projection period. The pace of Indian demand growth in the future is likely to be significantly slower than witnessed in China since 2003 as economic growth is more contained and high level of air pollution might compel a more rapid shift to low emission fuels, stated Nordea Bank.