Supply and demand gap
Market surveys project that the current global crude oil oversupply is between 1 MMbpd (million barrels per day) and 1.5 MMbpd. To learn more, read IEA Expects Crude Oil Supply to Outstrip Demand until 2017. High crude oil, gasoline, and distillate inventories, a strong dollar, and the rising US crude oil rig count could pressure crude oil prices. Rising OPEC (Organization of the Petroleum Exporting Countries) and Russian crude oil production will also pressure crude oil prices.
Crude oil price forecasts
A Wall Street Journal survey from major banks predicts that Brent crude oil prices will average $56 per barrel in 2017—$1 per barrel less than the September survey. US crude oil prices will average $54 per barrel in 2017—$1 per barrel less than the September survey. Major banks downgraded crude oil prices despite OPEC’s historic deal. For more on OPEC’s deal, read Crude Oil Prices and Oil Producers’ Meeting in Istanbul and Decoding the Major Oil Producers’ Meeting in Algeria. Crude oil prices won’t be able to sustain the current rally unless OPEC producers execute what they said in the meetings in Algeria and Istanbul.
Market intelligence company PIRA Energy Group forecast that the crude oil glut would end by 2Q17. It thinks that Saudi Arabia will help sustain prices between $50 per barrel and $60 per barrel.
The EIA (U.S. Energy Information Administration) estimates that US crude oil prices will average $41.92 per barrel in 2016 and $50.58 per barrel in 2017. It also estimates that Brent crude oil prices will average $42.54 per barrel in 2016 and $51.58 per barrel in 2017.
Impact on ETFs and stocks
Volatility in crude oil prices impacts oil and gas producers’ earnings like Cobalt International Energy (CIE), Northern Oil & Gas (NOG), Range Resources (RRC), and QEP Resources (QEP).
Oil prices also impact funds such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Fidelity MSCI Energy (FENY), the Direxion Daily Energy Bear 3x (ERY), the VelocityShares 3x Long Crude Oil ETN (UWTI), the iShares Global Energy ETF (IXC), the iShares U.S. Energy ETF (IYE), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the PowerShares DWA Energy Momentum ETF (PXI).
For more on crude oil prices, read Saudi Arabia: Weather Will Be a Key Demand Driver of Oil in 2H16. Read Will Crude Oil Prices Test 3 Digits Again? for more on crude oil price forecasts.
For ongoing analysis, visit Market Realist’s Upstream Oil and Gas page.