Crude oil prices likely to be elevated: Al Rajhi Capital

Crude oil prices will continue to be volatile but the direction is likely to be tilted slightly upwards as OPEC will continue to manage prices, Al Rajhi Capital said in a new report on Sunday, adding that “OPEC’s role is important as it will continue to set higher production levels just enough to keep the prices elevated”.

“With Iranian sanctions are expected to return from Nov 2018, the global supply demand situation is likely to tighten,” the brokerage firm noted.

“Even though increased Chinese imports and the US Shale production could offset the price rise, OPEC is key to decide market direction,” it said.

The report added that with a possible 1 mbd reduction in supply from Iran, OPEC will be comfortably able to balance the market at the optimal level so that prices could be well maintained.

“Increase in US production will be gradual, as seen in the past, given there are reports of limitations with regard to pipeline capacities. In an ever increasing dependence on shale, higher level of oil price would be needed to sustain production given its higher breakeven prices,” it noted.

Noting that demand continues to pick up, the report added, “Given that average global consumption was 95.4 mbd in 2015, and is likely to increase to 100.1 mbd in 2018 and 101.7 mbd in 2019, the optimal level of inventories required to meet any surge in demand or untoward disruption in supply could be higher in general. Though weaker EM currencies could lower demand slightly, we still believe demand to be up continuously, giving more power to OPEC.|”

Nonetheless, it said geopolitical issues, weaker uptake from China, and supply side issues at OPEC countries, could be the upside risks.