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Surging Crude Oil Price Forward Curve: What Does It Tell You?

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Mar. 30 2016, Updated 8:05 p.m. ET

Supply and demand gap 

Slowing global crude oil production could narrow the supply and demand gap. The IEA (International Energy Agency) estimates that the global crude oil supply and demand gap will be around zero by the end of 2017. Market surveys project that the supply and demand gap could narrow within 18–24 months.

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Crude oil price forecasts 

The EIA (US Energy Information and Administration) forecasts that West Texas Intermediate (or WTI) and Brent crude oil prices will average ~$34 per barrel in 2016 and ~$40 per barrel in 2017. The crude oil price forward curve suggests oil prices could hit $49.70 per barrel in December 2020. Goldman Sachs forecasts that Brent crude oil prices will average $39 per barrel in 2016 and $60 per barrel in 2017.

The forecasts of higher crude oil prices in 2017 could see oil producers like QEP Resources (QEP), WPX Energy (WPX), Oasis Petroleum (OAS), Northern Oil & Gas (NOG), and Sanchez Energy (SN) ramp up production and extend the crude oil glut market. Volatility in the oil and gas market also affects ETFs and ETNs like the iShares Global Energy ETF (IXC), the Direxion Daily Energy Bull 3x Shares ETF (ERX), the iShares U.S. Oil Equipment & Services ETF (IEZ), and the VelocityShares 3x Inverse Crude Oil ETN (DWTI).

Read the next part of this series for the latest on the U.S. Commodity Futures Trading Commission’s “Commitment for Traders” or COT report.

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