Oil Seen Surging About 50% By Fourth Quarter As Supply Eases

(Bloomberg) -- Oil bulls distressed that last week’s rally fizzled can find some comfort in forecasts for a bigger and longer rebound by the end of the year.

Analysts are projecting prices will climb more than $15 by the end of 2016. New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show. A global surplus that fueled oil’s decline to a 12-year low will shift to deficit as U.S. shale output falls, according to Goldman Sachs Group Inc.

U.S. production will drop by 620,000 barrels a day, or about 7 percent, from the first quarter to the fourth, according to the Energy Information Administration. Meanwhile, the International Energy Agency forecasts total non-OPEC supply will fall by 600,000 barrels a day this year. That may pave the way for a rebound as lower prices have stimulated global demand. Oil is the “trade of the year,” according Citigroup Inc., which is among banks from UBS Group AG to Societe Generale SA that predict a gain in the second half.

“U.S. shale should take the hit, that’s where you will see cuts and supply should start to taper off,” Daniel Ang, an investment analyst at Phillip Futures, said by phone from Singapore. “On top of that, there are bullish demand forecasts for the second half.”

West Texas Intermediate and Brent both closed at the lowest level since 2003 on Jan. 20. New York futures for March delivery closed at $29.88 a barrel on Tuesday and would need to gain 54 percent to reach the median estimate of $46 a barrel. The London contract for April delivery closed at $32.72 and needs a 47 percent boost to hit $48. The median price outlook was taken from estimates provided this year by 17 analysts who gave forecasts for both oil grades.

Shrinking Output

The oil price rout will shut sufficient production to erode the global glut and crude will turn into a new bull market before the year is out, analysts including Goldman Sachs’ Jeff Currie said in a Jan. 15 report. U.S. production hit a record high of 9.61 million barrels a day in June, according to weekly data from the EIA, and is forecast to average 9.11 million barrels a day in the first three months of the year. It may fall to average 8.49 million barrels a day during the fourth quarter, according to the agency.

“We’ll see higher oil prices” with “supply and demand tightening in the second half of the year,” Bob Dudley, chief executive officer of BP Plc, said in a Bloomberg Television interview Tuesday. The market will remain “tough and choppy” in the first half as it contends with a surplus of 1 million barrels a day, he said.


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Copyright 2016 Bloomberg News.

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