Upside risks to crude oil prices seem limited in 2018, says OCBC Bank

The upside risks to crude oil are expected to be limited through this year; although the rally momentum has picked up into 2H17, the higher prices of late have also triggered more US oil supplies, according to a recent report from OCBC Bank.

2017 has been an eventful year, especially for the energy complex. At the very least, crude oil prices have rallied from its low of the USD42/bbl handle in June to marginally exceed our year-end outlook of USD55/bbl. The uptick in oil prices is underpinned by the fruition of OPEC’s production cuts effort, recovering global growth and the consequent rebalancing fundamentals.

However, factors into 2018 could prove to be different, fraught with even more uncertainties that are bereaved of answers. Geopolitical tensions remain high on our list, while energy demand could moderate into the year given a strong H2 2017 base. Supply-wise, recent OPEC’s soft-deadline to extend oil curbs for nine months could mean an earlier-than-expected cessation of the deal.

Moreover, geopolitical tensions stay simmered in the backdrop and could disrupt global growth momentum should tensions intensify. With the recent OPEC-Russia agreement to extend their production curb plan by another nine months to end-2018, oil prices recently rallied another leg up. OPEC’s plan to limit supplies in an effort to buoy prices has come to fruition, especially with the rally in prices and narrowing supply glut.

"We do not see much headroom for oil to gain into 2018. With oil prices already at a strong approx. USD55 – 60/bbl now, we foresee prices to head marginally higher to at most USD70/bbl next year in the best-case event of a strong global demand and tame supply story," the report added.

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