High inventories and the potential for US shale production to respond quickly to any market tightening mean oil prices may flatline in 2017 before gradually moving higher over the next few years, according to Fitch Ratings.
The ratings agency said it expects supply and demand to be broadly balanced in the first half of next year, with a move to a more pronounced deficit from July onwards.
But Fitch said the still-high commercial inventories may delay any significant price response.
It said in a research note that it has maintained its base-case assumption that both Brent and WTI will average $45/barrel in 2017, $55 for 2018 and $60 for 2019.
Fitch added that the forecasts reflect its belief that it may take longer to fully return to its long-term equilibrium price of $65/barrel.
Recent reports suggest 2016 breakeven prices – at which oil must sell in order to balance the budget – put Qatar and UAE in the most preferable position at $44 and $57 per barrel respectively, followed by Kuwait at $60 and Saudi Arabia at $77.
“There is significant uncertainty about the future path of oil prices. Unprecedented capex cuts could translate into a far sharper fall in output than the consensus expectation, while there is also potential for demand growth to slow if economic growth disappoints or for supply to be higher than expected if US shale comes back strongly as prices rise,” said Fitch.