Supply and demand gap
Lower crude oil prices tend to narrow the supply and demand imbalance. On the other hand, high gasoline and distillate inventories, easing supply outages, and high OPEC (Organization of the Petroleum Exporting Countries) and Russian crude oil production could pressure crude oil prices. The strong US dollar and weak demand cues from Japan and Europe will likely continue to pressure crude oil prices. Read Crude Oil Market: Is the Supply and Demand Imbalance Narrowing? for more on the supply and demand imbalance.
Crude oil price forecast
Lukas Lundin, chairman of Lundin Mining, said that lower crude oil prices in the last two years led to the decline in investments into oil and gas exploration and production activity. This could push crude oil prices to as high as $100 per barrel over the long term. However, he expects crude oil prices to trade between $60 and $70 per barrel in the next nine months.
Consulting company Wood Mackenzie estimates that the oil and gas industry is cutting spending from 2015 to 2020 by $1 trillion. This would slow down global crude oil production activity and support crude oil prices.
Bloomberg estimates suggest that Brent crude oil prices will average $55.50 per barrel in 2017 and $62.65 per barrel in 2018.
Goldman Sachs estimates that US crude oil prices could trade between $45 and $50 per barrel in the next 12 months. It expects US crude oil prices to average $45 per barrel in 2016.
Barclays projects that crude oil prices will trade as low as $40 per barrel due to the United Kingdom’s recent Brexit vote.
The EIA (U.S. Energy Information Administration) estimates that US crude oil prices will average $41.16 per barrel in 2016 and $51.58 per barrel in 2017. It estimated that Brent crude oil prices will average $41.60 per barrel in 2016 and $51.58 per barrel in 2017.
Morgan Stanley expects crude oil prices to trade lower in the next few months due to oversupply.
Impact on ETFs and stocks
These ups and downs in crude oil prices impact oil and gas producers’ earnings such as Carrizo Oil & Gas (CRZO), PDC Energy (PDCE), Cobalt International Energy (CIE), SM Energy (SM), Sanchez Energy (SN), and QEP Resources (QEP).
They also impact funds such as the Fidelity MSCI Energy ETF (FENY), the iShares Global Energy ETF (IXC), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Fidelity MSCI Energy (FENY), the ProShares Ultra Oil & Gas (DIG), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the PowerShares DWA Energy Momentum ETF (PXI).
For related analysis, visit Market Realist’s Energy and Power page.