Recently, crude oil prices have been disappointing. However, an article in “World Oil” cites a study by Bloomberg which offers a good deal of hope for next year, especially for domestic shale producers. Admittedly, prices have been hammered by the double whammy of a crude glut on the upstream side of the business and a massive gasoline oversupply downstream. However, Bloomberg surveyed 20 industry analysts and found that the median price predicted for 2017 was $57 per barrel. While that will not be immediate relief, there are huge inventories that need to be worked off, and that will take time.
Michael Hsueh with Deutsche Bank sees crude flirting with $50 in the fourth quarter of this year before breaking through this barrier in 2017. “We’re looking at a market that’s still in a very slow process of rebalancing and we don’t think that you’ll get a sustainable deficit (demand exceeding supply and thereby reducing inventory) until the second quarter of 2017. These deficits are necessary to draw down global inventories, but that will still take until the end of 2018 it appears.
Domestic stocks of crude are down from a peak in April, but still higher than they have been in over 30 years. Exacerbating the situation are unprecedented gasoline inventories. Gareth Lewis Davies with BNP Paribas observes, “The price move down does make sense, given that we still have a huge overhang of oil inventories. There’s a sense that looking at the balance going forward, supply and demand are in parity. That means we’re still left with this overhang.”
Simon Flowers with Wood Mackenzie, sees the ultimate driver of price recovery as the massive reduction in capital expenditures by oil companies. The cutbacks, which might total $1 trillion by 2020, are a “ticking time bomb”, according to Flowers.
Hans Van Cleef, with ABN Amro, even thinks that this lack of investment in production could push demand above supply as early as the end of this year. He foresees oil reaching $70 next year as the market realizes there no longer is a surplus, and a shortage is imminent.
Wood Mackenzie’s Flowers, sees U. S. shale producers as the primary beneficiaries of next year’s price recovery. Many domestic operators have innovated and economized to the point that they can make a profit at $40. However, this is not true of the global industry. In fact, some operators, especially those in West Africa, will not be profitable, even at $57.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/8/2/looking-beyond-a-bear-market-analysts-see-57-crude-next-year .
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