By Georgi Kantchev and Sarah McFarlane
Expect a bumpy ride in the oil market.
Oil prices are likely to continue climbing in 2018 on the back of OPEC-led production cuts and a growing global economy, industry executives and analysts say. But any gains are expected to be kept in check by booming supplies from the U.S.
That means oil prices probably won't soar to the $100-a-barrel level seen in 2014, but they also won't plunge below $30 a barrel like early 2016. Instead, traders expect prices to be volatile but in a tight range -- much like 2017, when crude traded between roughly $45 and $67 a barrel.
A survey of 15 investment banks by The Wall Street Journal estimates that Brent crude, the international oil-price gauge, will average $58 a barrel in 2018, up from an average of $54 in 2017. The banks expect West Texas Intermediate, the U.S. oil gauge, to average $54 a barrel in 2018, up from $51 in 2017.
The predictions reflect an oil market in recovery mode after an oil-price rout that cost hundreds of thousands of jobs, strained the budgets of producers and led to delays or cancellation for dozens of multibillion-dollar projects.
In 2017 the market prices stabilized and more recently began to climb, due largely to major exporters' production cuts, synchronized global economic growth, rising geopolitical tensions in the Middle East and worsening prospects for the economy of big producer Venezuela.
Brent crude prices finished Friday at $66.87 a barrel, up 18% for the year and 49% above its 52-week low in June, following a series of supply disruptions. WTI prices, meanwhile, gained 12% to end at $60.42 in 2017.
Now, oil traders are contemplating the end of a global glut of crude in 2018 -- a long-awaited rebalancing of supply and demand.
In the most bullish scenario for 2018, in which demand grows at around 1.6 million barrels a day, the oil market "should be balanced within the year," said Giovanni Serio, head of research at Vitol Group, the world's largest independent oil trader.
The production cuts led by the Organization of the Petroleum Exporting Countries have already helped drain tanks recently brimming with crude around the globe. In October, industry stockpiles in the Organization for Economic Cooperation and Development, a group of some of the biggest developed countries, fell to their lowest level since July 2015, according to the International Energy Agency, a market monitor.
Strong demand for crude, driven by a rare spurt of synchronized global growth, also has been underpinning the market rebalancing. All 45 countries monitored by the OECD were recently on track to grow in 2017. That phenomenon has only occurred three times in the past 50 years, according to the OECD.
Oil demand "is a lot higher than what we are used to, even the low end of [the expected] range is maybe nearly twice as big as what we used to see before the 2014 price decline," Vitol's Mr. Serio said.
A number of obstacles remain on oil's upwards path: Higher prices could cause the OPEC production deal to collapse as producers try to cash in on higher prices by releasing more output. Some non-OPEC producers which aren't part of the agreement, like Canada and Brazil, are expected to pump more crude in 2018. And higher prices lately have led many U.S. drillers to boost activity.
"This market will not stand still," analysts at Barclays said in a December report.
Over the past quarter, U.S. producers have been locking in oil prices for their 2018 production. The so-called hedge ratio, which measures the amount of production for which prices have been locked in, jumped to 27% from the previous quarter's 12%, the highest level since 2014, according to Citigroup.
U.S. output is expected to rise to 10 million barrels a day in 2018, up 800,000 barrels a day from this 2017 and the highest annual average production on record, according to U.S. government estimates.
Write to Georgi Kantchev at firstname.lastname@example.org and Sarah McFarlane at email@example.com