Countervailing Forces Likely to Keep Oil Prices Relatively Stable in 2017

Over the last few months, oil prices have remained within a relatively narrow range between $45/bbl and $55/bbl. FSG believes that global oil prices will be driven by how strongly adherents to the OPEC-Russia production deal commit to agreed cuts, and how quickly US shale producers are able to fill the supply gap. These two factors will likely continue to offset each other and keep prices relatively balanced, with FSG forecasting an average price level of $52.5/bbl for WTI and $54.1/bbl for Brent in 2017. Over the last few months we have seen the following:

Risks to Monitor

While FSG believes that global oil prices are unlikely to shift course in the coming months, multinationals should be ready to respond to supply shocks that lift oil prices temporarily or drive increased price volatility. Several events could cause such a shock:

  • Political instability in Venezuela that leads to an oil production disruption
  • Conflict-driven supply disruptions in Libya, Nigeria or Gulf states
  • A breakdown of US-Iran relations that imperil the Iran nuclear deal

To prepare for a price shock global companies should:

  • Assess exposure to net oil exporters and net oil importers. Higher oil prices will provide economic relief for oil exporters while forcing net oil importers to tighten their belts
  • Re-evaluate market portfolios by prioritizing resilient markets and closely analyzing commodity-dependent markets

For further information on the oil shock scenario, FSG clients can access the Events to Watch for 2017 report. For our latest updates and insights, FSG clients can visit the client portalNot a client? Contact us to learn more.

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