Brent oil, the global benchmark, has been on a tear since June, jumping back above the $60 a barrel mark for the first time since July 2015.
Over that period, it’s added 37%, extending its rally from January last year to 125%.
The combination of stronger economic growth, a weaker US dollar, OPEC production cuts, including a possible extension beyond March next year, and geopolitical concerns in the Middle East have proven to be a potent mix.
However, even though some of those tailwinds are likely to persist, it’s unlikely to be enough to keep the Brent price above $60 over the longer-term, according to Capital Economics.
It says stronger non-OPEC oil supply, especially from the US, should place some downward pressure on prices in the year ahead.
“Healthy economic growth and the extension of OPEC’s output cuts until the end of next year should be enough to prevent oil prices falling back to the lows seen earlier this year,” says Tom Pugh, Economist at Capital Economics.
“But growth in non-OPEC supply, especially in the US, means that we still expect the market to be in a small surplus next year, which would put some downward pressure on prices.”
On the possibility of the US reimposing sanctions on Iran, one factor that has contributed to recent price strength, Pugh remains unconvinced they will be proceed, and even if they do, they’ll unlikely to cause that much disruption to global crude markets.
“We are sceptical that the US Congress will vote to re-impose sanctions on Iran,” he says. “Even if it does, sanctions are likely to be less effective this time round without the support of the EU and China.”
Given those assumptions, Pugh says that Brent prices will likely ease lower over time, forecasting that it will finish next year at $55 a barrel.
Front-month Brent crude futures currently trade at $61.16 a barrel.