Supply and demand balance
The EIA (U.S. Energy Information Administration) estimates that crude oil supply could outstrip demand by 730,000 bpd (barrels per day) in 1Q17. High US crude oil, gasoline, and distillate inventories, the strengthening dollar, and rising US crude oil rigs could also pressure crude oil prices.
The failure of OPEC’s (Organization of the Petroleum Exporting Countries) plan to cap production and successful implementation of Donald Trump’s energy policies would mean a period of lower crude oil prices. Goldman Sachs (GS) expects that the failure of OPEC’s meeting could see US crude oil prices test $40 per barrel in the short term. Read OPEC’s Crude Oil Production Rises despite OPEC’s Historic Deal to learn more.
Crude oil price forecast
In its World Oil Outlook report, OPEC forecast that its Reference Basket could hit $60 per barrel by 2020. OPEC’s Reference Basket is the average prices of petroleum blends produced by OPEC members. OPEC’s Reference Basket is expected to average $40 per barrel in 2016.
The EIA estimates that US WTI (West Texas Intermediate) crude oil prices will average $46 per barrel in November 2016 and December 2016. It also estimates that US and Brent crude oil prices will average $50 per barrel and $51 per barrel, respectively, in 2017.
Impact on ETFs and stocks
The ups and downs in crude oil prices can impact oil and gas producers’ earnings such as Marathon Oil (MRO), ConocoPhillips (COP), Cobalt International Energy (CIE), Carrizo Oil & Gas (CRZO), Goodrich Petroleum (GDP), and QEP Resources (QEP).
The rollercoaster ride in crude oil prices also impacts funds such as the ProShares UltraShort Bloomberg Crude Oil (SCO), the Direxion Daily Energy Bull 3x Shares ETF (ERX), the iShares US Energy (IYE), the ProShares Ultra Bloomberg Crude Oil (UCO), the Fidelity MSCI Energy ETF (FENY), the Direxion Daily Energy Bear 3x ETF (ERY), 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 and Winners and Losers in Energy after the US Election Results. For more on crude oil price forecasts, read Will Crude Oil Prices Test 3 Digits Again? and Major Banks Downgrade Crude Oil Prices despite OPEC’s Deal.
For related analysis, visit Market Realist’s Energy and Power page.