Oil prices stay low
WTI oil prices stay stuck below US$50 per barrel. US rig count is proving more important than OPEC cuts.
OPEC’s agreement to cut supply appears to be working, with high rates of compliance.
But higher US oil supply is more than compensating for this reduction. According to Baker Hughes Inc. data, the US rig count rose to 631 on March 17, 2017. This was around twice the 300-odd oil rigs operational in mid-2016.
OPEC output vs. US rig counts
Source: Factset, Deutsche Bank Wealth Management. Data as of March 15, 2017.
Saudi Arabia’s energy minister, Khalid al-Falih, says he is ready to extend cuts. But his Russian counterpart, Alexander Novak, believes that OPEC and its partners should decide in late April or mid-May whether to continue production curbs. If they are abandoned, oil prices will fall sharply.
In the medium term, accelerating US production, rising numbers of US oil rigs, elevated global inventories, a strong USD and crowded market positioning may hold back crude oil prices. But a gradual increase in global demand could lift WTI prices to US$58 per barrel on a 12-month horizon.
Markus C. Müller
Head, Chief Investment Office
Deutsche Bank Wealth Management