Despite a long term outlook on their per-barrel price of oil at $70 Brent and $64 West Texas Intermediate, analysts at investment research firm Morningstar Inc. expect the near term to continue to be “ugly.”
“OPEC spooked markets yet again in December by failing to signal any willingness to cut production and defend prices, even though weaker members states (like Venezuela) are hurting because of lower oil revenue,” equity analyst David Meats said in a Dec. 29 report.
As for when a recovery is expected, the answer is simple. Not any time soon.
The current supply and demand imbalance is such that oil production is effectively two years ahead of demand, he said. The much anticipated decline in U.S. production during the next few quarters won’t be enough on its own to quickly correct the global imbalance, he said.
Rather, events well beyond the control of North America will be key for the market to reach a normal state in which prices can respond before 2017. By Meats’ estimation, stopping the “lower for longer” trajectory of oil prices would be contingent on one or more of the following: Saudi Arabia reverses course and cuts production; global demand improves; or a geopolitical event in an oil exporting nation disrupts operations.
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