Key points:

• After a wild couple of years, oil prices have been more stable of late, spending the last three months essentially range bound in the mid $50s/bbl (Brent). The market had balanced price upside from an OPEC-Russia agreement to cut production against signs of life in US shale and conventional oil, although steep price falls in the last two days amid building US inventories show that the market remains concerned about the supply-demand balance.

• Brent, Tapis and WTI currently stand at around USD53/bbl, USD55/bbl and USD49/bbl respectively. Should data continue to confirm that the OPEC-Russia deal is holding, we expect a gradual uptrend this year, although if inventories remain elevated a rally will be less likely. After revising our oil price forecasts higher last month, we have kept our forecasts on hold in this update. Our central case is for oil prices to average around the mid to high USD50s in Q2, before reaching low USD60s by end-17 and stabilising at around those levels in 2018. As we approach the 2020s, there may be some upside as lower investment flows through to lower production capacity, although this is far from clear at present.

• The impact of higher oil prices at the bowser is magnified by our expectations of a lower Australian dollar, which we see falling to 70 US cents by the end of 2017. We place Australian petrol prices at 140 cents/litre by the end of this year and 147 cents/litre by the end of 2018.

• Another major consideration for Australia is the impact of oil market developments on the LNG export industry. Australia is significantly ramping up LNG production capacity, with new terminals in Western Australia, Queensland and the Northern territory having opened or under the advanced stages of construction. This will give Australia the world’s largest LNG production capacity – around 85 million tonnes per annum, over 20% of global capacity. With much of Australia’s LNG priced against Japan Crude Cocktail (the import price of crude oil into Japan), a recovery in the oil price represents an upside for the value of Australian LNG exports.

For further details, please see the attached report: 

• Oil Market Outlook:  March 2017 (PDF, 333kb)