Crude oil prices have been on a roller coaster ride in 2016
Crude oil prices have rallied almost 45% in the past two months. However, they are down by 13% since March 22 highs. They have also lost 65% since June 2014 due to long-term oversupply. The roller coaster ride in crude oil prices is expected to continue in 2016.
Crude oil price forecasts
The Wall Street Journal reported that many investment banks have raised their crude oil price forecast for 2016 for the first time since August 2015. Banks have raised their crude oil price forecast by $1 per barrel from their previous estimates. Brent crude oil prices are expected to average around $40 per barrel in 2016. West Texas Intermediate (or WTI) crude oil prices are expected to average $39 per barrel for the same period.
The U.S. Energy Information and Administration forecast that West Texas Intermediate and Brent crude oil prices will average ~$34 per barrel in 2016 and ~$40 per barrel in 2017.
Recently, Saudi Arabia and Kuwait decided to resume crude oil production at the jointly operated Khafji field, which produces 300,000 barrels per day. Saudi Arabia and Kuwait are members of OPEC (Organization of the Petroleum Exporting Countries) and will play a key role in the oil producers’ meeting to stabilize the oil market. The decision to resume production in the Khafji field suggests that these countries aren’t going to freeze crude oil production at January 2016 levels.
The rise in production from Iran, Iraq, and Russia also suggests that the oil producers’ meeting will be unsuccessful in supporting crude oil prices. The National Bank of Abu Dhabi suggests that crude oil prices could test $20 per barrel in the short term if Middle East countries increase crude oil production due to fragile economic conditions in the MENA (Middle East and North Africa) region. Read How Are Oil Prices Squeezing OPEC Members’ Budgets to learn more.
The ups and downs in crude oil prices affect oil producers like Cobalt International Energy (CIE), Comstock Resources (CRK), Triangle Petroleum (TPLM), and Sanchez Energy (SN). They also affect ETFs and ETNs like the iShares Global Energy ETF (IXC), the iShares U.S. Oil Equipment & Services ETF (IEZ), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), and the VelocityShares 3x Inverse Crude Oil ETN (DWTI).