Investment banks surveyed by The Wall Street Journal now predict that Brent crude, the international benchmark, would average $43 a barrel in 2016. That is up $2 from April’s survey. The survey of 13 investment banks predicts that the price of West Texas Intermediate, the U.S. oil gauge, will average $41 a barrel this year and $55 a barrel in 2017. The market is conspiring to help OPEC,” said Doug King, chief investment officer at RCMA Asset Management and manager of that firm’s $240 million Merchant Commodity hedge fund. “If I was in the Saudis’ shoes right now, I’d be pretty happy right now.”

Almost six months of lower prices have dragged the year’s average down. But analysts see a more-positive trajectory for the second half of the year. By the fourth quarter of 2016, analysts expect oil to be trading at $48 a barrel, up from a prediction of $47 in April’s survey.

Crude has rallied since it hit a decade low of less than $30 early this year as U.S. output continued to decline and a series of production outages from Canada to Nigeria cut supply. U.S. output has fallen from a peak of 9.7 million barrels a day in April 2015 to less than nine million barrels in recent weeks, according to government data. Few analysts expect OPEC to change its policy at this week’s meeting in Vienna. “The urgency to do something is gone as prices have rallied,” said Michael Wittner, chief oil analyst at Société Générale SA.

The path to consistent prices gains is expected to be volatile. The banks in the survey see Brent averaging $43 a barrel in the third quarter of this year, below where it is trading now. Analysts say that supply disruptions, such as through civil unrest in Nigeria, will ease, sending more crude washing back into markets. Production from some OPEC members is also on the rise, including from Iran, which is ramping up its output after international sanctions were lifted in January. OPEC could face another familiar challenge: U.S. shale drillers. U.S. oil fields are peppered with drilled wells that haven’t been activated and a $50 barrel is enough to now make them profitable, according to Citigroup. The recent price rally could release 400,000 barrels a day or more of new U.S. output, the bank said.

Source: Wall Street Journal, May 31, 2016

Categories: Industry update

By: Atmos International
Date: 17 April 2019