Oil prices dropped from initial gains and fell more than $ 1 during the weekend as the US dollar increased, which indicated a strong job data in the US. Energy markets continue to be supported by a strong commitment to OPEC-led output cuts and expectations of rising world demand in 2018.
According to "Reuters", Global benchmark ore contracts (Brent crude) fell to $ 1.44, or 2.07 percent, to reach $ 68.26 per barrel. On the other hand, the US gauge for West Texas has dropped $ 1.20, or 1.8 percent, to reach $ 64.70 per barrel.
During last week, the oil prices rose, as it was supported by OPEC producers' strong commitment to supply cuts, even with the US crude oil output rose above 10 million barrels for the first time since 1970.
In January, the benchmark crude rose for a fifth consecutive month with Brent gaining 3.3 percent, while US crude jumped 7.1 percent. This considered the strongest start of the year for Brent in five years and for the US in 12 years.
A survey showed that OPEC continued last month to adhere to the agreement of supply cuts led by the organization. Goldman Sachs raised its three-month forecast for Brent to $ 75 a barrel from $ 62, and a six-month forecast to $ 82.50 from $ 75.
However, the survey showed that oil prices are unlikely to go well above $ 70 a barrel in 2018, given the fierce competition between OPEC and the US rocky oil industry.
The world's largest banks raised their oil price forecasts this year because of the current price structure that has shifted from Contango to Backwardation, as well as the improved fundament factors in the market, and the concerns about geopolitical factors.
JPMorgan, American bank, predicted that crude futures traded in London would approach the level of $ 78 beginning of the second quarter of this year. It pointed out that hedge funds raised their bet on the upward trend of prices of Brent crude.
A report by the US Bank for economic analysts showed that crude oil prices received wide support from the decline of the dollar. It mentioned that the long-term impact of the reduction of production in conjunction with the increasing demand for crude will continue to be the main motive for rebalancing the market and continuing high prices.
The International Report explained that in the long run, oil is likely to recover more and more because the emerging economies in Asia are expected to grow at an annual rate of 4 percent over the next decade. I should be noted that this growth would lead to an increase in world oil consumption by 38 percent. The report added, "Despite the spikes in US production of rock oil and offshore fields, it can not keep pace with the growth of the demand. As there is a challenge for the producers to provide an additional 36 million barrels per day of oil to meet the consumption needs in the transport sector only in China and India And South-East Asia."
The report of JPMorgan pointed out to the continued growth of sea and air freights,
as both of then are relying heavily on fossil fuels. Therefore, this growth will also increase the demand for oil in particular.
The report said that despite the rapid recovery and the current price, the market has not yet completed all efforts to restore balance and treatment of previous problems. It also confirmed that for the near future, fluctuation would remain firmly entrenched in the oil markets. And it is difficult to predict the course of oil in the short term.
Goldman Sachs (American bank) and Société Générale (French bank) raised their expectations for Brent and West Texas crude prices due to the Backwardation. The Backwardation is a situation in which the price of the oil futures contracts is now lower than their prices, with future prices becoming higher in the case of the Contango of current prices. All of this encourages the storage of oil instead of selling it for higher gains in the future.
Goldman Sachs said, "The current increase in oil prices was supported by the increased demand, and the OPEC's commitment to cut output. It expected crude to expand its gains and exceed expectations." The American bank said in a note that
"The current rise in oil prices is driven by strong policies, global demand growth, and high compliance with OPEC production cuts."
Goldman Sachs' forecasts for Brent and Nymex crude prices this year were at $ 62 and $ 57.5 a barrel respectively. The bank also expected the outlook to rise further this year. On the other hand, the bank expressed concerns about the price level in 2019 with the increased production activity and hedging.
France's Société Générale revised its forecast for Brent prices from $ 58 to $ 62 this year, as well as to West Texas crude to $ 57.75, from $ 54 previously, with oil inventories becoming less volatile, and prices turning to " Backwardation." The French bank expects the Backwardation to remain in place for the rest of the year as the core and non-core factors would be improving, and the geopolitical concerns would be remaining. Brent's average price in the coming years will stabilize at $ 65 a barrel by 2022.
