With the OPEC meeting on oil prices just a day away, a ratings agency doubts that, even if a production cut deal is agreed, its ability to have a lasting impact on prices is unclear and will depend on the size of the cuts and the willingness of members to stick to them.
The much-awaited OPEC meeting in Vienna on Wednesday will decide whether OPEC members will cut oil production in an attempt to stabilize the oil market and reduce the oil glut which has haunted the market for over two years.
Fitch Ratings said on Tuesday that high inventories and the potential for US shale production to respond quickly to any market tightening mean that oil prices may flatline in 2017 before gradually moving higher over the next few years.
The credit rating agency added that it expects supply and demand to be broadly balanced in the first half of 2017, with a move to a more pronounced deficit from the second half of next year. But the still-high commercial inventories may delay any significant price response.
As a result, Fitch maintains its base-case assumption that both Brent and WTI will average $45 per barrel in 2017. Furthermore, the agency said that the price would rise to $55 per barrel in 2018 and introduced a 2019 price expectation of $60.
Fitch expects that it may take longer to fully return to the agency’s original long-term equilibrium price assessment of $65 per barrel.
Also, it sees the future path of oil prices as highly uncertain. Unprecedented capex cuts, according to Fitch, could translate into a far sharper fall in output than the consensus expectation, while there is also potential for demand growth to slow if economic growth disappoints or for supply to be higher than expected if US shale comes back strongly as prices rise.