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Oil Prices Passed $50—a Key Psychological Number

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Crude oil prices could rise 

The International Energy Agency (IEA) and Goldman Sachs estimate that the global oversupply of crude oil will diminish in 2016. To learn more, read Will Crude Oil’s Supply and Demand Balance Narrow or Widen?.

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Crude oil price forecast 

Goldman Sachs (GS) forecast that Brent crude oil prices could trade around $50 per barrel in 2H16 due to recent supply outages. For more on supply outages, read Why Crude Oil Prices Rose 84% since the Lows in February 2016.

On the other hand, BNP Paribas predicts that Brent crude oil prices could trade between $35 and $40 per barrel in 2016 due to a stronger dollar, oversupply, and near-record US crude oil inventories.

An OPEC (the Organization of the Petroleum Exporting Countries) meeting is scheduled for June 2 in Vienna. There are no optimistic cues as to the group reaching any agreement to cap production. OPEC members will produce more to maintain their market share. This higher production will pressure crude oil prices. Bloomberg surveys project less chance of any production freeze at this meeting. For more on OPEC production, read OPEC Crude Oil Production Data Ignites Concerns of Oversupply.

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US crude oil prices briefly breached the psychologically significant mark of $50 per barrel. They’re also trading above their 200-day moving averages. However, technical indicators (like stochastic) suggest that oil is overbought, so prices could fall. Bank of America Merrill Lynch predicts that a strong dollar could pressure oil prices.

The EIA (U.S. Energy Information Administration) estimates that Brent crude oil prices will average $40.52 per barrel in 2016 and $50.65 per barrel in 2017. US benchmark WTI (West Texas Intermediate) crude oil prices are expected to average $40.32 per barrel in 2016 and $50.65 in 2017.

The uncertainty in crude oil prices affects oil and gas exploration and production companies like Stone Energy (SGY), Sanchez Energy (SN), and Carrizo Oil & Gas (CRZO). They also affect ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil (SCO) and the PowerShares DWA Energy Momentum ETF (PXI).

For related analysis, you can visit Market Realist’s Energy and Power page.

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