Supply and demand
Market surveys project that the global crude oil glut could narrow due to supply outages in 2016. The International Energy Agency (or IEA) estimates that the global oversupply of crude oil will diminish in 2016.
Please read Will Crude Oil’s Supply and Demand Balance Narrow or Widen? to learn more.
Crude oil price forecast
West Texas Intermediate (or WTI) crude oil prices settled below the 50-day moving average level of $46.92 per barrel on June 27, 2016. WTI crude oil settled below the 50-day moving average for the first time since February 2016.
Prices falling below the 50-day moving average indicate that they might fall further. Secondly, a possible resumption of crude oil production in Canada and Nigeria could pressure crude oil prices. Thirdly, Brexit and a strong dollar should also add pressure to crude oil prices.
Russia’s energy minister, Alexander Novak, reported that Brexit and a strong dollar could pressure crude oil prices in the short term.
Nigeria’s state minister for petroleum resources, Emmanuel Ibe Kachikwu, reported that Nigeria’s crude oil production may hit 2.2 MMbpd (million barrels per day) in July 2016. Nigeria’s crude oil production totaled 1.8 MMbpd in June 2016. Ibe Kachikwu projects that Brent crude oil prices could average between $50–$55 per barrel by the end of 2016.
Citi Futures expects that there could be a possible decline in global crude oil demand estimates from various energy agencies due to Brexit. For more on Brexit, please read the first part of this series.
Barclays projected that Brent crude oil prices could average $44 per barrel in 2016. However, after Brexit, it expects that crude oil could trade as low as $40 per barrel. It estimates that Brent could trade around $57 per barrel in 2017 compared to the previous estimate of $60 per barrel.
The U.S. Energy Information Administration (or EIA) estimates that Brent crude oil prices will average $40.52 per barrel in 2016 and $50.65 per barrel in 2017.
US benchmark WTI crude oil prices are expected to average $40.32 per barrel in 2016 and $50.65 in 2017. This forecast could be revised in the July Short-Term Energy Outlook report due to the expectation of changes in oil demand following Brexit.
The uncertainty in crude oil prices impacts oil and gas producers like Range Resources (RRC), Stone Energy (SGY), PDC Energy (PDCE), and Sanchez Energy (SN). It also impacts funds such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the United States 12-Month Oil ETF (USL), and the PowerShares DWA Energy Momentum ETF (PXI).
For related analysis, please visit Market Realist’s Energy and Power page.