UniCredit sees crude oil futures heading higher in 2017, decline rates accelerating

Oil prices would likely head higher in the back-half of 2017 as world demand held up and natural declines in production at existing fields accelerated, a top strategist said.

Demand from China and India would each grow by 400,000 barrels per day next year, contributing over the half of the expected 1.3m b/d increase in global demand, Jochen Hitzfeld at UniCredit Research said in a research report sent to clients.

Increased consumption from within the Organisation of Petroleum Exporting Countries should not be "underestimated" either, he said.

Assuming OPEC kept output at 33.0m b/d then a 900,000b/d shortfall in supplies would open up in the second half of 2017, Hitzfeld estimated, versus the 400,000 deficit he anticipated for the backhalf of 2016.

Lower investment in replacing existing reserves also meant natural decline rates were set to accelerate, the strategist added, referencing research from Wood Mackenzie according to whom corporates were planning to spend $1trn less on exploration.

In any case, recent research from IHS showed that explorers only found 2.8bn barrels-worth of crude oil and related liquids in 2015 - the lowest since 1954 - the strategist added.

Nonetheless, prices might yet drop in 2017, but for that to be the case Libya and Nigeria would need to overcome their respective fraught political situations and ramp-up output back to its pre-crisis level.

As of 15:35 BST front month West Texas Intermediate crude oil futures were 1.74% to $47.62 per barrel and Brent moved higher by 0.776% to $50.24 per barrel on the ICE.