Oil Price Forecast for 2016: Price to Stay Low or Rebound?

Oil Price ForecastWith oil prices still down more than 40% since last June and the Organization for Economic Co-operation and Development (OECD) downgrading global growth forecasts, many are wondering where oil prices will be in 2016. While predictions for oil at $20.00 per barrel seem a little too bearish, a return of oil to $100.00 a barrel in 2016 might be a little too bullish. When it comes to an oil price forecast in 2016, $65.00 may be the new $85.00.

Oil Prices Bow to OPEC?

After hitting $107.00 per barrel in June 2014, oil prices started to decline on growing inventories and a weak global economic outlook. By the beginning of November 2014, oil prices slid 20% to around $80.00 per barrel.

Then things got really bad. In late November, Saudi Arabia refused to cut OPEC oil production. At the time, the Saudis altruistically noted that there was no need to cut supply. The world needed oil and they were going to help provide it.

Over the ensuing months, oil prices tumbled to around $43.00 per barrel in January 2015 and $42.00 per barrel in March.

Despite the world being awash in oil, OPEC’s refusal to cut production has been widely seen as an attempt to hobble the U.S. share industry and shore up its own market share. By maintaining oil production output, OPEC (primarily Saudi Arabia) is hoping to drive high-cost fracking producers out of the market.

I say primarily Saudi Arabia because they are the one member of OPEC that has enough money to wait out low oil prices. Beleaguered member countries like Iran, Iraq, Venezuela, and Nigeria are begging for oil production cuts to raise prices. But who is going to stand up to Saudi Arabia?

The fact of the matter is, besides oil, Saudi Arabia and other members of OPEC really have little to offer the rest of the world economically. And it needs to maintain its foothold. Between 2007 and 2015, OPEC’s global share declined from 37% to 31%. Over the same time frame, global demand for oil actually increased by 6.6 million barrels per day. (Source: Worldoil.com, May 31, 2015.)

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