Oil price to average above $50 a barrel in 2017, ratings agency says

Gordon Kent

Oil prices are likely to average more than $50 (US) a barrel next year after reaching a low point last winter, according to a report released Wednesday by DBRS.

The cost per barrel of West Texas Intermediate (WTI) has risen to roughly $43 (US) from $26 (US) since January and is likely to stay in that range for the next few months as global supply continues to exceed demand, the credit rating agency says.

Although OPEC countries and Russia are planning to meet before the end of the month to discuss freezing production at current levels, DBRS feels there’s little likelihood they’ll reach an agreement.

The organization, citing the latest International Energy Agency report, doesn’t expect global supply and demand to reach a balance until the last three months of 2017, later than previously anticipated because supply is growing and demand dropping.

Large oil inventories built up since 2014 are contributing to a supply overhang that could moderate price increases when rebalancing occurs, DBRS says.

However, if global demand continues to grow in 2018 at a rate similar to what’s projected for 2017, the market will require much higher volumes of oil to overcome a potentially large supply deficit, DBRS says.

Some oil and gas companies have indicated that if the price of WTI stabilizes above $50 (US) a barrel, they’ll increase capital spending, with a few planning to boost capital and drilling budgets “considerably” when prices stay above $60 (US), the report says.

The North American natural gas market has also improved modestly in recent months, with the spot price for gas in Canada at $2.76/thousand cubic feet, but American inventories are still expected to hit record levels this fall.

Long-term prices are unlikely to rise significantly because there is a large supply of North American gas that can be economically developed at prices exceeding $3 (US)/thousand cubic feet, the report says.

gkent@postmedia.com

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