Oil edged up on Tuesday, lifted by a strong demand outlook for the coming weeks, but the overall market conditions remain weak on the back of an ongoing fuel supply overhang, prompting several banks to cut their price forecasts.
Brent crude futures were at $47.01 per barrel at 0545 GMT, up 13 cents, or 0.3 per cent, from their last close. US West Texas Intermediate (WTI) crude futures were up 10 cents, or 0.2 per cent, at $44.50 per barrel.
Traders said the uptick in prices was in part due to healthy demand expected in the coming weeks.
Weekly US gasoline demand data “compares favourably to the five-year average and miles driven also continue to grow year-on-year,” said Bank of America Merrill Lynch.
However, beyond the seasonal strength, “US gasoline demand may have peaked in absolute terms last year", it said, adding that there was no structural tightness in sight once the peak demand summer season finishes.
OPEC-led output deal
Crude prices are about 18 per cent below their 2017 opening levels despite a deal led by the Organization of the Petroleum Exporting Countries (OPEC) to cut production from January.
OPEC along with some other major exporters like Russia agreed to hold back around 1.8 million barrels per day (bpd) of production between January this year and March 2018.
However, an over 10 per cent jump since mid-2016 in US production to 9.34 million bpd, as well as rising output from Nigeria and Libya, OPEC-members who were exempt from cutting, have undermined efforts to tighten the market.
OPEC had exported 25.92 million bpd in June, 450,000 bpd more than in May and 1.9 million bpd more than a year earlier.
“OPEC has yet to address this increase in production,” US bank Goldman Sachs said, but added that there was a chance that OPEC could introduce a deeper output cut in a “shock and awe manner, with little public announcement".
Goldman forecast
Should no further cuts happen, Goldman said crude prices could fall below $40 per barrel.
BNP Paribas said that “the simple truth is that OPEC and Russia have to contend with the fact that there is output growth elsewhere diluting their efforts at reducing supply.”
The French bank therefore said it had made “deep cuts” to its crude price forecasts.
“We now see the price of WTI averaging $49 per barrel 2017 (-$8/barrel revision) and that of Brent $51 per barrel (-$9/barrel revision). We also revise downwards 2018 with WTI averaging $45 per barrel (-$16 per barrel) and Brent $48 per barrel (-$15/barrel revision),” BNP said.
Britain's Barclays bank said on Tuesday that it had cut its average 2017 and 2018 Brent price forecasts to $52 per barrel for both years from $55 and $57 per barrel, respectively.