KResearch believes that, in all likelihood, there will not be any deal on an oil production freeze emerging from the informal talks between OPEC and non-OPEC nations this September 26-28 in Algeria. We forecast that the Dubai crude oil price will average around USD45/barrel during 4Q16, versus USD38.40/barrel over 8M16. Prices should be in the neighborhood of USD48/barrel in 2017, thanks to constantly growing oil demand.
However, factors that will likely come into play in determining oil prices – which shall need a close watch – are upheavals in Libya and Nigeria, as well as oil production progress in Venezuela and the US. If the US can reduce shale oil production costs, it is possible that its production capacity may rise, pressuring global prices. Other factors include the appreciation of the US Dollar and the looming possibility of a Fed rate hike that might hit global economic growth.
Looking specifically at energy business, higher oil prices as a result of increasing demand will have some bearings on energy companies at every production stage – upstream, midstream and downstream. Oil companies engaging in both exploration and production should benefit from higher selling prices for their products, thus likely becoming lucrative investment opportunities. Refineries could profit on their standing oil inventories, but petrochemical companies might be gripped by higher raw material costs. Gas stations, meanwhile, might see higher retail oil prices, which are expected to inch up by degrees, allowing demand in petroleum products to grow further.
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