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ING forecasts Brent oil to slide to $57 in 2nd half of 2018

ING expected Brent oil, the benchmark for more than half the world’s oil, will fall to $57 in the second half of 2018.

Brent crude traded at $65.45 a barrel at 7 a.m. in London on Monday, compared with about $45 in June. ING forecasts Brent at $57 in the second half of 2018. Prices were at more than $115 in mid-2014, before a global glut sparked the biggest crash in a generation. West Texas Intermediate, the US marker, is currently near $62 a barrel, Bloomberg reported on Monday.

Crude’s rebound since last year is encouraging American drillers to pump even as they make efforts to be disciplined on spending,  Warren Patterson, a commodities strategist at the Dutch bank.Patterson said.

“We need to see prices in the short-term trade below $60 to reduce that incentive for U.S. producers,” he said.

ING Group NV said oil risks sliding back under $60 a barrel as a surge in US shipments to Asia threatens to undermine a deal between OPEC and its allies.

While the producer group complied with a pledge to curb output and ease a glut in 2017, US flows that are gaining a bigger slice of the prized Asian market may prompt some nations to boost supplies, said Patterson.

The resulting fallout could drag down crude prices after a rally of more than 40 percent since June, he said.

“The longer the deal goes on, it’s going to start falling apart,” Patterson said in an interview in Singapore, referring to an output-cut agreement between the Organization of Petroleum Exporting Countries (OPEC) and other producers including Russia. “They continue to give market share away to the US.”

As American output continues to expand, more exports will sail to Asia, the traditional bastion of Middle East producers.

ING’s outlook is in contrast to bullish views from Royal Bank of Canada and Goldman Sachs Group Inc to BMI Reseach and Societe Generale SA, which see prices supported as strong demand soaks up supply from the US While Patterson does see healthy oil consumption, he said growth may slow and fail to completely absorb gaining American output.

While the US is now pumping more than 10 million barrels a day, surpassing a record set in 1970, that boom is being accompanied by a surge in overseas shipments, helping drain stockpiles at the nation’s largest storage hub.

Exports have averaged about 1.5 million barrels over the past six months, almost double the level in the previous six months, Energy Information Administration data show. Asia is the biggest buyer of the supplies.

OPEC should beware as US shale producers are set to steal a bigger slice of the market in Asia, which consumes more oil than any other region, according to industry consultant Wood Mackenzie Ltd. Crude shipped overseas from the U.S. will soar to almost 4 million barrels a day by the mid-2020s, rivaling shipments from Iraq and Canada, it said last week.

Asia is “a market that the Middle East does not really want to give up,” ING’s Patterson said. “We think compliance is likely to slip. The deal will still officially be in place, but once we get into 2019 there’s no chance that we will see some sort of deal.”

 

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