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#MoneyBeat U.S. Shale, OPEC Pull Oil Prices in Opposite Directions

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The tug of war between U.S. shale producers and OPEC will keep oil prices within a price band of between $60 and $75 a barrel this year, according to a new analysis.

The Oxford Institute for Energy Studies estimates that the price of Brent crude will average $67 a barrel this year. On Tuesday, Brent was down 0.4% at $62.34 a barrel.

After a period of global oversupply that drove prices from over $100 a barrel in mid-2014 to under $30 in early 2016, prices recovered last year. But 2018 promises to be a pivotal year as questions remain how sustainable the rebound will end up being. The rally boosted Brent by 60% from June to late January, but those higher prices appear to have encouraged greater production from the U.S.

The relentless growth of U.S. shale output “will be the key factor capping the oil price,” providing a ceiling in the mid-$70s a barrel, the OIES said in its report, published Tuesday.

On Tuesday, the International Energy Agency said the U.S. will soon surpass Saudi Arabia’s production and may overtake Russia to become the world’s biggest oil producer.

If U.S. shale is providing a ceiling to prices, cuts by OPEC and other big producers will give it a floor, the OIES said.

That is, of course, if the production cut deal between the Organization of the Petroleum Exporting Countries and other big producers like Russia holds. After taking effect last year, the agreement helped drain swelling global inventories and fueled the price rally. Some analysts, though, say that those higher prices could cause that coalition to collapse as producers boost production to cash in.

“If OPEC/NOPEC want to maintain the current price gains and put a floor under the oil price at $60 a barrel, they have to maintain the output cut for the rest of this year,” the OIES said in its analysis.

The report notes that the biggest risk for the market would be a sharp fall in output from Venezuela, which has been engulfed in a political and economic crisis. That could push prices well above their forecast range.

Another wild card could be demand, if higher prices dampen consumption by motorists and businesses, the OIES said.

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