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 US shale output falls, according to Goldman Sachs Group Inc.
US production will drop by 620,000 barrels a day, or about 7%, 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 to Citigroup Inc., which is among banks from UBS Group AG to Societe Generale SA that predict a gain in the second half.
WTI and Brent added 4.4% and 8% last week, respectively, amid speculation Russia and OPEC will meet to discuss trimming crude output. They have since given up most of those gains.
“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 on 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.
There are signs supply and demand will start to come back into balance this year, OPEC Secretary-General Abdallah el-Badri said in January. Global demand is forecast to increase by about 1.3 million barrels a day, while supply from outside the producer group is expected to contract by about 660,000 a day, he said.
Output from Russia may fall this year by as much as 150,000 barrels a day, or about 1.3%, according to analysts including Neil Beveridge, at Sanford C. Bernstein & Co.
Iraq, the second-biggest producer in OPEC, predicts oil may rise to $50 a barrel, while the UAE sees the glut shrinking, even after Iran boosts exports.
“The combination of continued demand growth and falling US production will eventually help create a floor in the market from where it will be able to rally back towards the $40 to $50 range by year-end,” Ole Hansen, head of commodity strategy at Saxo Bank said.
