Supply and demand
The IEA (International Energy Agency) estimates that the crude oil market is closer to balancing in 2H16. Read Supply and Demand Gap: Will It Benefit or Pressure Crude Oil Prices? to learn more.
Crude oil price forecast
US gasoline supplies are at the highest level for this time of the year in decades. However, high seasonal supplies will lead to much earlier maintenance of US refineries. This will lead to seasonal weakness in demand for US crude oil. It will put pressure on crude oil prices.
The IEA estimates that seasonal demand weakness could weigh on crude oil prices. Chinese oil giants like PetroChina will enter into scheduled refinery maintenance between July and September 2016. US refineries will go into planned refinery maintenance later this summer ahead of the winter heating season. Scheduled refinery maintenance by the US and China could pressure crude oil prices.
The strong US dollar, high crude oil and gasoline inventories, and weak demand cues from Japan and Europe will pressure crude oil prices.
BNP Paribas and JBC Energy estimated that Brent crude oil could test as low as $40 per barrel in 2016 due to seasonal demand weakness.
Barclays estimates that the Brexit vote will lead to a decline in global oil demand by 100,000 barrels per day in 2016 and 2017. Barclays also projects that Brent crude oil prices will trade as low as $40 per barrel due to the Brexit vote in 2016.
The resumption of crude oil production in Canada and Nigeria could add more concerns for crude oil prices. Goldman Sachs estimates that WTI crude oil might trade between $45 and $50 per barrel over the next 12 months.
US crude oil rigs have been rising for the last four weeks.
Reuters says that US shale oil producers could adapt to $45 per barrel oil. This means that oil producers will ramp up production again, even at the current prices. This could extend the oil glut.
The rollercoaster ride in crude oil prices impacts oil and gas producers’ margins such as Stone Energy (SGY) and Sanchez Energy (SN). It also impacts funds such as the United States 12 Month Oil ETF (USL) and the PowerShares DWA Energy Momentum ETF (PXI).
For related analysis, visit Market Realist’s Energy and Power page.