Crude markets have rallied a good deal in recent months, as strong oil demand growth and supply issues have pulled forward the industry recovery by about a year compared with the outlook we published in April. Even so, 2017 fundamentals are far from robust from an oil price perspective, and don't appear supportive of prices moving much above the $50 per barrel threshold.
We’re lowering our 2019 oil price forecast to $60 from $65
Another large uptick in rig additions in the U.S. could be enough to eliminate near-term inventory draws altogether, which is the last thing oil markets need for a sustained price recovery to occur.
With this in mind, we are setting our 2017 price forecast for West Texas Intermediate at $50 per barrel, which we believe is sufficient to prevent any further net shale activity increases in the coming quarters. Stronger fundamentals look set to emerge in 2018. The root cause of potential supply shortages in the medium term is the major cuts in upstream capital expenditures during the past two years. As a result of low investment levels, capacity additions outside of shale are about to fall dramatically after 2017.
Further, OPEC will have little spare capacity, as the cartel has also been cutting back on oilfield spending. The industry is thus setting itself up to have few options to meet incremental supply needs besides U.S. tight oil in 2018/19. What some have suspected for some time is now looking likely: tight oil is set to become the key swing supplier for global crude markets.
Because of improving fundamentals being pulled in by about a year, we are raising our 2018 WTI oil price forecast to $65 from $52.50, which we believe is the level sufficient to drive a major increase in U.S. tight oil activity. However, we continue to believe that U.S. shale will overheat eventually in a high price environment. As a result, we’re lowering our 2019 WTI oil price forecast to $60 from $65. Our mid-cycle price outlook of $55 is unchanged.
