Oil’s New Normal Could Be Lower Than Market Expectations

oil_stocks_jan_16For the first time this year, Brent and WTI crude futures touched $50 a barrel in May 2016. However, in spite of the upward movement, market experts still disagree on the future price of “black gold”.

In the last two months, oil prices have staged a rally because of unplanned production outages in Canada and Nigeria that enabled balance the international supply and demand.

According to analysts, the “new normal” for oil would be between $35 and $50.

The oil prices are expected to hold up at current levels in the near future. However, depending on the global economic activity, the oil prices could hit the lower end at some stage.

At present, there is an excess supply of oil in the market and it would take the international economy around two to three years to absorb the excess supply. Hence, oil prices would move within a range bound market.

In the fourth quarter of 2016, the price of Brent crude is projected to trade at around $49 per barrel. This in line with the expectations of Gattiker-Ericsson’s (Head of Equity Strategy at Credit Swiss). The price of Brent crude is expected to rally further and average $55 through 2017.

A recovery in WTI oil prices to more than $50 per barrel would result in improved US energy exploration and this estimated increase in supply would restrict price on the upper range.

Some experts believe the stage is set for a fundamental price recovery in the oil market. There has been a decline in oil supply from non-OPEC nations. The demand from China for oil increased in April 2016.  Therefore, supply outages and increasing demand from China would result in a better balance in crude prices.

There could be small corrections in prices in the short-term, despite the trend upwards. However, the upward movement would have to be gradual since inventories are very high and any untimely steep increases in prices could derail the rebalancing process.

To know about AcademyFT Trading programmes, please have a look at the Academy of Financial Trading reviews.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s