Contents

Introduction

Next year is expected to see the long-awaited rebalancing of the global oil market. Attempts by OPEC member countries to end the pumping craze that led to the collapse in prices in mid-2014, together with the projected drop next year in unconventional oil production in the US, could mark a turning point.

However, even if the forecasts of lower supply materialize, nothing indicates there will be a drastic change in prices. According to the International Energy Agency (IEA), the projections for supply and demand suggest that the market - if left to itself - could still be in surplus in the first half of year next.

A key date for the global oil industry was November 30. On that day the 171st (Ordinary) OPEC meeting was held in Vienna, Austria, at which the 14 member countries confirmed the decision to reduce production for the first time since 2008. Expecting the decision, forecasts for next year suggest moderately higher international oil prices compared with this year's average. According to the October report of the US government agency Energy Information Administration (EIA), the price of Brent crude will average US$43.4/b this year and increase to US$51/b in 2017. The WTI price, meanwhile, will increase from US$42.7/b to US$50/b.

While the consensus within the global hydrocarbons industry is that the worst is behind us - prices are 80% above the lows reached in January this year - the average price of crude in 2017 is not expected to be much higher than the current level. For Latin America, this slight recovery in prices will have different effects. In countries that are undergoing regulatory and tax reforms to open up the industry to increased investment, a price per barrel of above US$50/b could boost the hydrocarbons sector. However, in those countries where the regulatory framework - in addition to the economic and institutional environment - remains a heavy burden on the industry, the modest projected price rise will not be enough to reverse the decline in exploration and production.

Unlike when a price of US$100/b drove the whole industry, irrespective of the level of efficiency, and also unlike when crude at US$30/b depressed the whole sector, a price slightly above US$50/b is set to expose the differences between countries in the region.

"Regulatory changes expected in Brazil, auctions planned in Mexico and greater interest caused by the change of environment in Argentina make for measured optimism for these countries in 2017," says Horacio Cuenca, director of Latin America upstream research at energy consultancy Wood Mackenzie, in Rio de Janeiro. "On the other hand, with the slight recovery expected for the price of a barrel, countries like Venezuela, whose revenues are highly dependent on oil prices, will continue to experience problems investing in the industry and increasing production. Likewise Colombia, which although it is less dependent on hydrocarbon revenues, has seen activity plummet in recent years due to the fiscal terms."

Differences in expectations for next year among countries in the region are already becoming clear. In this report we analyze the varying scenarios facing the main oil producing countries in Latin America in 2017.

Figure: Oil Price
[GRAFICO:FIGURA:ID_2429]

Figure: Oil Price Forecasts

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