A survey of 36 economists and analysts forecast Brent crude to average $ 71.68 per barrel in 2018, about $ 4 higher than $ 67.40 forecast in last month’s poll and just above the $ 70 average so far this year.
“Oil fundamentals have been increasingly positive for oil prices of late. Geopolitical events surrounding Iran and Venezuela augur further oil supply loss, adding to that already generated by OPEC and allied non-OPEC producer restraint,” said Harry Tchilinguirian, global head of commodity market strategy at BNP Paribas.
The Organization of the Petroleum Exporting Countries, Russia and several other producers agreed to cut output from January 2017 by 1.8 million barrels per day (bpd) to cut a global surplus. This has led to a rapid decline in inventories.
The drawdown, along with concerns about further supply disruptions from Venezuela and renewed U.S. sanctions against Iran, fuelled a recent rally in prices, driving benchmark Brent above $ 80 a barrel in May, to its highest since November 2014.
To compensate for the drop in supply, Saudi Arabia and Russia have been in talks ahead of a key OPEC meeting in Vienna in June to raise oil production by 1 million bpd.
As a result, the oil price has dropped by about 7 percent from this month’s peak.
“Any increase in output from Saudi Arabia and Russia will be a bearish price signal, especially when the U.S. output is also climbing,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
However, some analysts say higher output from Saudi Arabia and Russia will not fully compensate for losses from Venezuela and Iran and will only keep prices capped in the near term.
“We expect that the production ramp-up will be gradual … a ramp up of 180,000 bpd every month until year-end. This is probably not enough to bring the market back into surplus,” said Jan Edelmann, commodities analyst at HSH Nordbank AG.
The survey forecast U.S. WTI crude futures will average $ 66.47 a barrel this year, around 7 percent lower than the forecast for Brent.
“Cheap U.S. oil relative to international benchmarks will lead to rising demand for U.S. crude,” Commerzbank analyst Carsten Fritsch said.
Production in United States is forecast to hit a record high in June, widening the premium of Brent to U.S. light crude <CL-LCO1=R> to its biggest since March 2015, at about $ 9 a barrel.
U.S. oil production has surged by more than 27 percent in the past two years to 10.73 million bpd and analysts forecast it to grow by about 1.3 million to 1.5 million bpd this year.