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MAS expects Brent oil to average US$53 per barrel for 2017

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The Monetary Authority of Singapore's (MAS) baseline forecast for the Brent oil benchmark for the whole of 2017 is an average US$53, it said in its April edition of its biannual macroeconomic review released on Thursday.

OIL prices, which affect Singapore's inflation, are not expected to deviate much from US$53 per barrel in the months ahead, said Singapore's central bank.

The Monetary Authority of Singapore's (MAS) baseline forecast for the Brent oil benchmark for the whole of 2017 is an average US$53, it said in its April edition of its biannual macroeconomic review released on Thursday.

"This projection assumes a relatively flat profile for oil prices in the months ahead," it said. This forecast is about 20 per cent higher than the average of US$44 last year, MAS noted.

The forecast is also well below a consensus Brent crude estimate from the latest Reuters poll of US$57.25 per barrel.

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Oil prices were at around US$30 per barrel early last year. Opec then led an agreement to cut production late last year. Brent oil benchmark then traded within a tight mid-US$50 range in the first two months of 2017, compared to an average of US$50 in Q4 2016.

Correspondingly, core inflation - a key monetary policy consideration in Singapore - rose to 1.3 per cent in Q1 2017, from 1.2 per cent in Q4 2016. Headline inflation rose faster to 0.6 per cent from a previous zero per cent.

"While the turnaround in the prices of oil-related items impacted both measures of inflation, the effect on headline inflation was more discernible given their larger weight in the overall CPI (consumer price index) basket," said MAS.

The "initial success" from Opec's production cuts was soon countered by effects of inability in clearing inventories. The cuts may also have spurred a recovery in the shale oil industry, said MAS.

Oversupply concerns have also resurfaced, putting a dampener on oil price increases, added MAS. "Nevertheless, in the short term, renewed uncertainties about the geopolitical situation in the Middle East and their impact on oil supply could inject some temporary volatility into global oil prices."

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