HLIB Research maintains oil price forecast

PETALING JAYA: HLIB Research has reiterated its 2017 oil price target of US$50-US$60 (RM214.50-RM257.40) per barrel as it anticipates strong demand, with inventory draw down in the second half of the year (2H17).
“Year-on-year, oil price would still register an improvement from a low base of US$43.70 per barrel average in 2016, leading to a firmer footing for the oil and gas industry,” the research house said in a report.
In 1H17, Brent has averaged at US$51.60 per barrel, still within HLIB’s forecast range of US$50-US$60 per barrel for 2017 albeit at the lower end. It said Q2’17 was a weak quarter for oil prices but 2H17 is expected to be supported by seasonal demand and inventory drawdown, adding that the days of US$100 per barrel is more distant than ever.
“Beyond 2017, the industry might not see oil prices reaching US$100 per barrel within the next five years; oil prices might take longer than that to recover to its previous heights mainly due to US shale technology improvement allowing shale oil economics to be viable even at US$50 per barrel level. Short investment cycle of shale rig has also given US shale producers the ability to produce more oil within six months’ time, lowering oil supply shock possibility for world oil market.”
However, it said oil prices are well supported. Despite bleak long-term outlook, significant downside appears to be limited as Organisation of the Petroleum Exporting Countries (Opec) members would more than likely to be incentivised to extend their production cut beyond March 2018.
The US Energy Information Administration has also factored in the extension of production cuts by Opec in their global oil production forecast. Overall net deficit of world oil market is expected to materialise in 2017 but will soon return to surplus in 2018 which points to stable oil price outlook rather than improving oil prices.
HLIB maintained a neutral call on the oil and gas industry with oil prices expected to remain range-bound. The sector is expected to continue trading sideways while a gradual increase in capital expenditure in the upstream segment is expected.