QNB expects oil prices to be capped at $58 a barrel in 2018. The banking group had expected average prices for 2017 to be at $55.
QNB's weekly report cited projections of global under supply of around 0.8mn barrels a day as the main factor contributing to its forecast.
The report discussed the volatility seen in oil prices in recent weeks, when oil prices moved in a five dollar range of $50-55 a barrel. The main factors contributing to the moves were rising oil output, mainly from the US, pushing prices down and declining inventory as a result Opec cuts, which is pushing prices up.
The report also focused on a trend of rising non-Opec output next year. It cited forecasts by the International Energy Agency (IEA) that US production will increase by one million barrels next year.
Libya, Nigeria, Canada, and Brazil are also likely to increase their production in 2018, bringing the total non-Opec production growth to about 1.4mn barrels a day in 2018. The materialisation of these forecasts will play a big role in determining whether Opec will continue cutting oil production or not.
The report discussed two possible scenarios for Opec in 2018. The first would see the group halt production cuts by March 2018, resulting in oversupply by 0.2mn barrels a day. This scenario would see oil prices fall to $48 a barrel.
The second scenario sees Opec extending the cuts to the rest of 2018. This would lead to the market becoming undersupplied by 0.7mn barrels. Under that scenario, Opec's production growth would only be 0.1mn barrels a day, with prices capped at $58 a barrel, which happens to be the break-even price for shale.
QNB's report said that it gave the second scenario more weight because it emphasised Opec's goal of reducing accumulation in global inventories to the five-year historical average of 2.7bn barrels.
Extending the cut for another year would create undersupply, forcing a drawdown from inventories.
The report noted that drawdown has been slow so far, due to strong production from the US.
However the current rates of decline, if extrapolated, would see Opec's target reached by the end of 2018.
A failure to extend the cuts would result in further delays in reaching that target. Moreover, given the negative impact of the fall in oil prices over the past few years on the fiscal balances of Opec member states, there is limited appetite for another decline in oil prices even if it deters some US production.
The report also highlighted the risks of maintaining cuts for next year. It said that maintaining the cuts could lead to Opec ceding substantial market share. Another challenge would be whether Opec countries would comply to the agreements.