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What are the future prospects of oil prices? At least a few Wall Street analysts have reason to believe the commodity could exceed the somewhat symbolic $60 per barrel threshold by the end of 2017, according to Bloomberg.
"While U.S. shale output may come roaring back amid higher crude prices, production curbs by OPEC and its allies should help offset that increase over the next six to nine months," Bloomberg said regarding a report from Citigroup researchers Ed Morse and Seth Kleinman. The key to this prediction, however, may lie outside OPEC's direct control.
The primary unknown factor is Russia, the biggest non-OPEC member that agreed to their plans to reduce overall oil production. That strategy came into effect January 1, helping oil prices rise considerably. But since then, OPEC and others have speculated that the cutting plan will need to be extended far beyond the six months initially planned for. It is currently unknown if Russia, and indeed the rest of OPEC, will come onboard with an extension of the production cut.
Citi analysts Morse and Kleinman noted that due to OPEC's plan, the global oil market has set itself up for a considerable challenge in the fourth quarter of 2017.
"While the historic agreement between producers that went into effect Jan. 1 induced a euphoric and unsustainable surge in bullish bets by investors, that also set the stage for an inevitable sell-off as record fourth-quarter OPEC output and oil stored at sea moved to onshore sites," Bloomberg said, citing the Citigroup report. "Goldman Sachs has also made similar comments, saying ample inventories that have undermined the output cuts are set to shrink and calling for more patience from the market."
Of course, the even bigger obstacle in the way of OPEC, one that's even more aggressive, is the United States. The U.S. has significantly ramped up its output of oil thanks in large part to shale oil extraction. Citigroup's Morse and Kleinman said American oil output would likely grow by 1 million barrels per day on a yearly basis by December 2017. Combined with an expected surge in output from OPEC if the reduction plans fall through, the oil market would suddenly become just as unbalanced by the end of the year as it was at the beginning.
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