Analyst: Oil Supply and Demand to Rebalance in 2016

Analyst: Oil Supply and Demand to Rebalance in 2016
Evercore ISI expects oil prices next year to settle in the $60s per barrel, once demand increases and supply finally declines.

Last fall, it appeared unlikely that the Organization of the Petroleum Exporting Countries (OPEC) would cut its crude oil production. And sure enough, the cartel increased its production to a rate not seen in 30 years.

As Doug Terreson, an oil analyst with Evercorer ISI, explained during a Nov. 13 webinar, OPEC sought two things: an increase in demand and less production in the West. The $70 per barrel price didn’t achieve either objective; nor did $60 oil. However, he said, at $50 per barrel, a supply and demand rebalance is likely. A boost in production brought about that figure, but demand is catching up.

“We believe oil demand will rise by about 1.7 million barrels per day this year, and by about 1.3 to 1.5 million barrels per day in 2016,” he said. “So the demand side is doing its part.”

In addition, he said that non-OPEC supply, specifically U.S. shale, will decline by around 400,000 to 500,000 barrels per day in 2016.

“We think production will flatten out in 2016, so when we put all this together: that demand will rise between 1.3 and 1.5 million barrels per day and non-OPEC supply declines by 400,000 barrels per day and that OPEC supply will increase by 500,000 barrels per day or so – when you do the math, you conclude that inventory should decline next year,” he said.

As a result, toward the second half of 2016, Brent prices should gravitate toward the $60s per barrel.

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Brent Crude Oil : $51.03/BBL 1.51%
Light Crude Oil : $47.09/BBL 0.66%
Natural Gas : $2.93/MMBtu 1.38%
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