Refueling in 2018: more expensive or not?

After the oil price barely moved in the first half of 2017, the price of black gold fell from $55 per barrel to less than $45 per barrel in June. From there began a slow but steady climb up. This climb will bring oil prices to around $65 per barrel by the end of this year.

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The price has risen explosively in recent times. Source: St. Louis Fed

The reason for this increase was the agreement between the oil producing countries (united in OPEC) and a number of non-OPEC countries (such as Russia). In it, the countries agreed to limit their joint oil production in 2018, in order to keep the supply of oil relatively low.

Fractionally lower
The US government's energy agency expects the average oil price to reach $2018 per barrel in 57, slightly higher than the expectation of oil market analysts at Bank of America Merrill Lynch, who expect an average oil price of $54 per barrel.

Colleagues at Goldman Sachs do not see the oil price changing significantly and arrive at an average of $62 per barrel. From oil futures prices we can deduce that oil traders on the exchanges see the oil price moving between $48 and $68 per barrel in the first quarter of next year.

If these expectations indeed come true, it would mean that the oil price would be fractionally lower. Other analysts assume that the oil price will decline on balance, especially in the first half of 2018, with a return to $45 per barrel or even slightly below (the level of June 2017) in the offing.

Repeat of 2017
The main reason for this expectation is that the recent increase in oil prices ($65 per barrel) will cause many US shale oil producers to increase production. They have already done this in recent months and the size of the increase, as well as the speed with which they did it, has surprised many analysts.

All these considerations together seem to indicate that the oil price will not show crazy jumps next year and can broadly reflect 2017. Something we need to keep an eye on is geopolitical tensions. This is because it can disrupt the expected peace. With the tense situation in the Middle East and dangerous relations between the United States and North Korea, there could well be upward pressure on the oil price.

From the central banks' point of view, this outlook means that they should not expect any complications with regard to the policy set out. Oil prices do not appear to be rising quickly or sharply, which would fuel inflation and put pressure on banks to raise rates more quickly. A structural drop in the oil price is also not possible, which means for the money masters in Washington and Frankfurt that the fear of falling inflation and deflation will be absent.

It looks like the agricultural entrepreneur will not have to count on a much lower fuel bill. However, a higher bill is also unlikely.