Oil may hit $70 per barrel in 2017: BAML
December 12 2016 09:16 PM
Oil price
Given its outlook for a “gradual recovery” in Brent prices to $61/b on average next year, BAML believes shale oil production will reverse its current trend as early as next year.

Brent crude may hit $70 a barrel at the peak of the US driving season and average $61/b in 2017, according to Bank of America Merrill Lynch (BAML).

In its view, the Opec’s November 30 decision to cut crude production with key non-Opec producers, a first since 1998, “marks a clear turning point” with individual country quotas being allocated to all members, an independent production monitoring committee established.
And it appears the world’s largest crude oil producer Russia has committed to join the cut, BAML said in its ‘2017 commodity outlook’ released on Monday.
As a result, Bank of America Merrill Lynch said the global oil market should enter into a deficit as soon as first quarter of next year it projects total global oil demand roughly 560,000 barrels per day (bpd) above supply on average over the course of next year.
Most importantly, BAML believes the “historic Opec and non-Opec agreement marks a clear turning point” for the global oil market.
In the past two and a half years, the supply glut has led to a large inventory overhang, with total commercial petroleum stocks across the Organisation for Economic Co-operation and Development (OECD) sitting at 3,060mn barrels, about 350mn barrels above average historical levels.
Given its outlook for a “gradual recovery” in Brent prices to $61/b on average next year, BAML believes shale oil production will reverse its current trend as early as next year.
“After all, some shale basins have current breakeven prices in the mid-30/b,” BAML points out.
The ‘Austin Chalk’ or the South Central Oklahoma Oil Province (SCOOP) basins in the US, both rich in oil and gas resources, have the lowest breakeven among all basins.
Yet, production is “not significant enough” to make a difference to the overall shale outlook for now.
As for the big three basins, breakeven prices are currently standing in the $40-50/b range on average for a given play.
“As a result, our US oil service Equity Research colleagues expect a gradual increase in oil rigs from Q2, 2016 to Q4,2017, which could eventually lead to sequential growth in shale output,” BAML said.
In this base case scenario, BAML sees shale productivity at the same level as in 2016. This, it said implies that productivity gains continue to level off as prices recover, driven by offsetting factors of efficiency gains and producers gradually moving out of the core areas.
In the Permian Basin in North America, drilling days continue to shorten and well estimated ultimate recovery continues to improve, with many companies quoting large gains in their third quarter earnings.
The Permian Basin, which is a sedimentary basin largely contained in the western part of Texas and the southeastern part of New Mexico, is a large oil and natural gas producing area.
“Taking into account all these parameters, we see shale output bottoming in the first quarter of 2017 before rebounding sequentially by 660,000bpd by Q4, 2017,” BAML said.



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