Oil Price Likely to Rally in 2018

Morningstar analysts have raised their price forecast for oil to $65 a barrel as fundamentals post 2017 are looking particularly bullish for prices

Stephen Simko, CFA 22 September, 2016 | 2:40PM

Strong demand growth and supply issues have pulled forward the oil price recovery by about a year relative to our previous outlook. Fundamentals after 2017 are looking particularly bullish for prices, and an oil price rally in 2018 is looking more and more likely. We’ve raised our 2018 forecast to $65 per barrel.

Even so, the strength of U.S. shale is lurking beneath the surface. Our analysis shows that the recent uptick in rigs and falling shale decline rates together are enough to stabilise U.S. crude production within six months. If activity isn’t scaled back, U.S. production will begin growing in 2017, albeit barely.

This highlights the strength of the U.S. oil market: Should the oil price begin to rise, the industry strong enough to eventually snuff out any future price rally. We remain bearish on oil prices longer term, and we reiterate our mid-cycle oil price outlook of $60 a barrel for Brent crude oil.

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About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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