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In early 2017, prices of crude oil remained stable. The high oil prices seen in December 2016 continued throughout the first quarter of 2017 as the oil producers involved in a deal to reduce crude oil output (OPEC countries, Russia and other non-OPEC countries) gradually delivered on their commitments.

Nevertheless, crude oil prices fell in March over growing concerns among investors that output cuts would not be fully implemented. Saudi Arabia, Kuwait and Angola fully complied with their commitments, while the United Arab Emirates and Venezuela were nowhere near their target. Eventually, crude oil output declined to 90% of the total agreed limit of 1.8m barrels per day. However, investors argued that the deal may not be a lasting one given the lack of solidarity between the countries involved. What is more, the accelerating production of shale oil in North America and a gradual increase in oil stocks in the US mitigated the effect of reduced oil supply from the OPEC countries on its price. Oil price rebounded temporarily in April when the US Department of Energy announced the first weekly decline in oil stocks since the beginning of the year. Despite this, stockpiles were still record-high and the price of oil began to fall again.

Crude oil prices in 2017

Brent and WTI oil prices (USD) in 2016 and 2017 (month ahead contract)

Source: ICE – Intercontinental Exchange.

Despite the lack of solidarity between the countries declaring output limitation, the OPEC group together with partner countries agreed to extend oil production cuts for another nine months. As a result, oil prices rose sharply. However, only a few days later the increase was halted by the news of growing production levels in Libya and Nigeria, which were exempt from the programme due to the consequences of civil wars in those countries. Combined with record-high crude stocks in the US, the production growth rates in Libya and Nigeria undermined investors’ confidence in positive effects of reduced supply from OPEC countries in the following nine months. As a consequence, on June 21st the price of crude fell to the year’s low of USD 44.82 per barrel.

Starting from July 2017, a steady upward trend was observed, driven by information about the first in 24 weeks drop in the number of active wells in the US as well as Saudi declarations on further reduction of exports and rumors of prolonging OPEC’s production curb deal. At the end of August, the US coast was hit by hurricane Harvey, as a result of which the output from US refineries declined by more than 25%. The tense situation in the Middle East due to Kurdistan’s independence aspirations, Hurricane Nate, which brought to a standstill facilities accounting for 90% of oil production in the Gulf of Mexico, and further reduction of oil stocks in the US, were other factors fuelling price increases. At the OPEC summit held at the end of November in Vienna, a decision was made to extend the oil output curbs until the end of 2018.

bn bbl Demand Supply
2016 2017 2016 2017
OECD 46.75 47.20 26.54 27.29
 including the US 19.69 19.87 14.85 15.56
non-OECD 50.12 51.30 70.67 70.65
 including China 12.81 13.26 4.87 4.78
 including former USSR countries 14.22 14.33
 including OPEC 39.23 39.28
Worldwide 96.87 98.50 97.21 97.94
Source: EIA - U.S. Energy Information Administration

In 2017, average demand for crude oil rose by 1.5% compared with the previous year, to 98.39 million barrels per day. Among the world’s largest consumers outside the OECD, the most pronounced increase, of 3.1%, was observed in China. Other Asian countries also recorded a demand increase, on average by 2.8%.

The global oil supply rose in 2017 by 0.8% year on year. The strongest oil output increase was recorded in the United States – by 4.4%, or 0.66 million barrels per day. Crude production grew also in the former Soviet Union countries – by 0.11 million barrels per day. Despite the production cutting deal, a slight output increase of 80 thousand barrels per day was also recorded in the OPEC member countries.

The United States, keeping a close watch on oil market developments, decided to intensify oil production. In 2017, the number of wells rose sharply, reaching a historical high of 768 wells in mid-August. Then the number of active oil wells fell slightly and remained stable. The average daily output in the US was 15.51 million barrels per day, up by 4.5% on 2016. In 2017, the number of gas wells grew by nearly 35%.

Outlook for crude oil market

On the last trading day in 2017, prices of crude on fuel exchanges were close to their two-year highs – Brent oil front month on the ICE market was quoted at above 66 USD/bbl, and WTI front month on the NYMEX exchange – at above 60 USD/bbl. Oil price forecasts for 2018 are highly divergent. Some analysts predict that the price of the commodity may rise even to 80 USD/bbl, citing geopolitical risks and the consequent reduced supply of oil to the market as the basis for their predictions. Others are forecasting a price drop on strong supply of crude from the US. The sharp rise in US shale oil production has for many years been strongly constraining global oil price growth and may result in oil prices on the global exchanges falling below 55 USD/bbl.