OPEC's decision to extend production cuts by nine months should provide some support for oil prices, global rating agency Fitch Ratings said.
The extension is expected to 'help digest a significant part of excessive inventories during the rest of the year,' Fitch said Thursday in a statement.
'However, a production surplus could return in 2018 if the deal is not rolled over again, as new projects continue to come online and U.S. shale production is set to grow,' it added.
The U.S. production could be up to 800,000 to 1 million barrels per day (bpd) higher by the end of 2017, compared to the same period a year ago. 'This is half of the roughly 1.8 mbpd taken off the market by the OPEC-led cuts,' Fitch said.
The agency said oil prices in the long-term will depend on whether U.S. shale oil would be able to fill potential supply gaps in 2019-2020.
Fitch forecasts international benchmark Brent crude price to average $65 per barrel in the long-term.
In the short-term, it estimates price of Brent crude to remain around $50-$55 a barrel 'given impressive U.S shale production growth.'
OPEC decided last November to limit its oil production with Russia, and extended this through March 2018, in order to trim the glut of supply in the global oil market.
The glut, however, may not be taken away as much as the cartel anticipates, Fitch warned.
'OPEC's appetite to extend cuts further into 2018 may be reduced if crude stocks remain resilient and market prices subdued,' the agency said.
'OPEC could decide to return production to pre-cut levels as the cartel may not want to lose its market share and look to raise revenues through volumetric growth.'
A growth in production volumes, however, would increase the global glut and push crude oil prices lower again.
By Ovunc Kutlu in New York
Anadolu Agency
energy@aa.com.tr