Crude prices fell over 2 percent in the previous session on the back of the soaring dollar. Despite the falls, overall sentiment in physical oil markets was confident as there are mounting signs of a tightening oil market.
“The near term fundamentals in the oil market have turned positive. Demand is stabilizing, OPEC production has peaked (and will fall if cuts are implemented), and global inventory declines imply that the market is more balanced than many believe,” Neil Beveridge of Bernstein Energy said in a note to clients.
The Organisation of the Petroleum Exporting Countries, OPEC, plans to implement a 0.5 to 1 million barrels per day production cut after a meeting on Nov. 30. OPEC’s current output stands at a record 33.6 million barrels per day.
Bernstein’s Beveridge said that due to OPEC’s cuts and general market conditions, he was “forecasting a return to $60 per barrel in 2017 and $70 per barrel in 2018”, adding that even higher prices would be prevented by rising production outside OPEC.
“Ultimately, a rise in U.S. production (and non-OPEC supply more broadly) will cap the recovery in price,” he said.
U.S. crude oil production C-OUT-T-EIA has fallen almost 12 percent since peaks in 2015, to around 8.5 million barrels per day. But rising drilling activity has slightly lifted output again in recent weeks, in what some analysts say is an early indicators that the U.S. shale industry has adapted to lower prices and can operate at around $50 per barrel.
