Get Ready for $50 Oil Prices: Analyst
Could the slump in oil prices finally be over? The answer is yes, if you ask analysts at major financial institutions. In fact, they are saying oil prices could surge 50% by the end of this year.
West Texas Intermediate (WTI) crude recently hit its lowest level since 2003. But a Bloomberg survey suggests that analysts have become quite bullish on the price of oil. The median estimate for WTI crude by the fourth quarter is $46.00, nearly 50% higher than today’s price. Brent crude is also expected to surge. Its median price estimate is $48.00 by the end of 2016. (Source: “Oil Prices Could Jump 50% by the End of 2016,” Bloomberg, February 2, 2016.)
Goldman Sachs believes that the downturn in oil prices will shut down sufficient production and ease the global glut before the end of this year.
“The key theme for 2016 will be real fundamental adjustments that can re-balance markets to create the birth of a new bull market, which we still see happening in late 2016,” wrote Goldman analysts Jeff Currie and Damien Courvalin. (Source: “Goldman Sachs Sees Oil Bull Market Being Born in Today’s Crash,” Bloomberg, January 15, 2016.)
Ole Hansen, head of commodity strategy at Saxo Bank, arrived at the same conclusion: “The combination of continued demand growth and falling U.S. production will eventually help create a floor in the market from where it will be able to rally back towards the $40.00 to $50.00 range by year-end.”
According to OPEC Secretary General Abdalla Salem El-Badri, here’s how supply and demand will change: globally, demand is expected to increase by around 1.3 million barrels a day, while supply from outside OPEC will contract by about 660,000 a day.
However, it might not be all sunshine and rainbows for oil prices. President Obama is going to propose a $10.00-per-barrel tax on oil in his fiscal 2017 budget plan. According to a Reuters report, the proposed fee would be paid by oil companies and phased in over five years. (Source: “Obama to Seek New Tax on Oil in Budget Proposal,” Reuters, February 4, 2016.)
That would not be good for oil prices.