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Fitch: US likely to respond aggressively to current high prices

Fitch: US likely to respond aggressively to current high prices
15:30 13-06-2018 | icon 14

Baku, Azerbaijan, June 13

By Leman Zeynalova – Trend:

US shale production is likely to respond aggressively to current high prices, Fitch Ratings said in its Global Economic Outlook – June 2018.

“Oil prices surged to $80 per barrel (Brent) in late May before falling back to around $75 per barrel. This mainly reflected adverse supply shocks emanating from the re-imposition of US sanctions on Iran and collapsing production in Venezuela. Compliance with the OPEC + deal has also been strong,” said the report.

But, according to Fitch, it also partly reflects positive demand surprises given robust global GDP growth.

“Oil prices are not expected to remain at these elevated levels. US shale production is likely to respond aggressively to current high prices, and OPEC and Russia have hinted at a willingness to make up for future losses in Iranian output. Progress in reducing costs across the industry continues to point to the cost of the marginal barrel in the medium term having fallen to the $55-$60 range,” said the report.

However, with near-term demand strength and geo-political risk unlikely to dissipate rapidly, prices are expected to return to this equilibrium relatively slowly, according to Fitch.

“Oil prices are now expected to average $70 per barrel in 2018 and $65 per barrel in 2019, up from a previous forecast of $57.5 per barrel for both years,” said Fitch Ratings.

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