FxWirePro: Five glitches that hinder prospects of WTI prices in 2017

The recent struggle in continuation of WTI crude price upward movements still indicate that market consensus remains sceptical of the delivery of cuts by OPEC following their agreement last November. Rapid reductions to output create upside bias to our price forecast of $57/bbl and $55/bbl for Brent and WTI in Q1'17, respectively. Price risks are clearly skewed to the upside if OPEC members aggressively deliver on their agreed cuts.

The market rebalancing we expect to develop in the coming months could already be underway, albeit not visibly, as adjustments occur in exporting nations domestic crude oil stocks. Thus, prices will likely be buffeted in the coming weeks as headlines, about the pace of market tightening, shift market expectations about the speed and depth of producer adjustments.

Against these positive factors, there are several developments that could weigh on oil prices in the coming weeks, and leave current forecasts as the modal view. These include:

1) Libya lifting output more quickly than we have assumed, pressuring North Sea crude markets;

2) The US President-elect continues to use quasi protectionist language ahead of his inauguration, and the potential revamp of the US corporate tax system could have profound implications for the US refining and upstream industries;

3) Mexico has embarked on rapid price deregulation that will create headwinds for its demand;

4) Weekly US EIA data show big builds in products at year end, but these are likely to be reversed in coming weeks;

5) CFTC data highlight record net managed money length in WTI and Brent; liquidation of this length would pressure prices.

On balance, we still look for prices to strengthen as we head thru 2017. Markets still appear to underappreciate the commitment that OPEC members and non-OPEC producers will show to the agreements in the first and second quarters of the year.