Slowing U.S. production is unlikely to offer much respite to low oil prices into next year as high OPEC output feeds a persistent supply glut, a Reuters survey showed on Friday.
Benchmark North Sea Brent crude is expected to average $58.52 a barrel in 2016, marginally down from last month’s poll and above $55.94 seen so far this year, the survey of 32 analysts showed.
This is the lowest average 2016 forecast in the polls conducted this year.
U.S. crude is projected to average $54.44 a barrel next year, up slightly from last month’s forecast of $54.10.
Production in the United States will continue to decline in response to cheaper oil, but this is not likely to translate into higher prices, the analysts said.
“We think prices will grind slowly higher over the next few years, which should help to ease the falls in production but we don’t expect a sharp rally in prices or a surge in output,” Thomas Pugh of Capital Economics said.
The oversupply scenario could also be aggravated by an emerging trend of build-ups in refined products.
Influential Wall Street bank Goldman Sachs said crude prices could drop sharply as storage sites for refined products come close to maximum capacity.
Goldman’s head of commodities research, Jeff Currie, said in October he did not expect oil to break above $50 a barrel next year and saw the chances of a drop to $20 at below 50 percent.
The bearish mood in the market was aggravated by a drop in refining profitability while demand growth slowed, analysts at Jefferies said in a note.
Most analysts expect the Organization of the Petroleum Exporting Countries to stick to its stance of maintaining record-high production when it meets on Dec. 4, a year after it chose to defend market share rather than prices.
The exporter group is “about to reap the fruit of last November’s tough decision not to cut production,” Giorgos Beleris, senior analyst with Thomson Reuters GFMS, said.
OPEC would want U.S. oil production to decline further so the supply glut is reduced without any decline in its share, said Rahul Prithiani, director at CRISIL Research.
Bernstein had the highest 2016 forecast for Brent at $86 a barrel, while Natixis had the lowest at $48.50.
(Reporting by Kevin Jose and Arpan Varghese in Bengaluru; Editing by Dale Hudson)
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