Oil may struggle to rise beyond about $60 a barrel by the end of 2017, even if OPEC extends its supply cuts and global demand continues to improve, as U.S. shale production ramps up.
Brent crude futures LCOc1 are expected to average $57.52 a barrel in 2017, according to a Reuters poll of 31 analysts and economists. The current forecast is slightly lower than the $58.01 forecast in the previous survey. Brent has averaged about $55.73 this year. "OPEC will extend its deal to limit cumulative supply, probably adjusting the numbers in order to take into account developments about global stock levels and production from non-participating countries," Intesa SanPaolo analyst Daniela Corsini said.
"We expect crude markets will be in deficit in the first three quarters of 2017 and then they could swing into a small surplus in the fourth quarter amid rising non-OPEC supply," Corsini added. OPEC has agreed to cut production by around 1.2 million barrels per day in the first half of this year and has so far surprised the market by showing record compliance. The group could cut further in coming months as the biggest laggards - the United Arab Emirates and Iraq - pledge to catch up quickly with their targets.
However, analysts feel a revival in U.S. shale production will keep a lid on any major price recovery.
U.S. drillers added five oil rigs in the week to Feb. 24, bringing the total count to 602, the most rigs since October 2015, energy services firm Baker Hughes Inc (BHI.N) said on Friday.
"Though the rate of efficiency gains in U.S. shale oil drilling will slow as time progresses, we still expect total production to expand as the number of rigs increase. This will weigh on prices," said Capital Economics analyst Caroline Bain.
"That said, we believe the price of oil will rise gradually through the year to $60 per barrel at the end of 2017, with increased global demand helping to re-balance the market."
Crude demand is expected to grow by about 1.3 million bpd in 2017, according to most analysts and this will partially offset the growth in U.S. crude output, thereby rebalancing the market.
Uncertainty surrounding the direction of the U.S. fiscal policy under the administration of President Donald Trump, a stronger dollar, and political uncertainty in countries such as Libya, Nigeria, and Venezuela are also likely to play into the dynamics of the crude oil market this year.
The poll forecast U.S. light crude CLc1 will average $55.66 a barrel in 2017 and $60.68 in 2018. WTI has averaged about $53 so far in 2017.
Raymond James had the highest 2017 Brent forecast at $73 per barrel, while Commerzbank had the lowest at $50.
(Additional reporting by Vijaykumar Vedala, Arpan Varghese and Koustav Samanta in Bengaluru; Editing by Amanda Cooper and Susan Thomas)