November 4, 2016 Read More →

Analysts See No Oil Price Recovery on Horizon

Georgi Kantchev for the Wall Street Journal:

A survey of 14 investment banks by The Wall Street Journal predicts that oil prices will stay below $60 a barrel in 2017. Last summer, many of the same banks were predicting oil prices would rise to more than $70 a barrel this year—a level that has now been deferred to 2018.

Prices fell to their lowest since September on Wednesday following data showing a record increase in U.S. crude stockpiles. Meanwhile, an OPEC deal to curb production looks in jeopardy ahead of the oil cartel’s meeting at the end of this month.

With a global glut of crude showing few signs of abating, those factors have dragged prices down in recent days after last month’s rally took them briefly above $50 a barrel.

“October’s increase was fueled by expectations but the hard facts show the rally wasn’t sustainable,” said Carsten Fritsch, analyst at Commerzbank. “Next year prices will rise only slightly.”

The banks in the survey predict that Brent crude will average $56 a barrel next year, unchanged from last month’s survey. They expect West Texas Intermediate, the U.S. oil gauge, to average $54 a barrel next year, down a dollar from the previous survey.

U.S. firms have drilled thousands of wells they have yet to tap, called “drilled but uncompleted” wells, or DUCs in the industry parlance. Many of those are now being greenlit, meaning they would start producing crude soon, analysts say.

“If U.S. output starts to rise again, this would only add to the oversupply and delay the rebalancing of the market,” Mr. Fritsch said.

Oil investors are also looking to a pivotal meeting by the Organization of the Petroleum Exporting Countries at the end of this month, where the organization is going to try to clinch a production cut deal.

But at technical talks last week, OPEC officials failed to finalize a proposal scheduled to be submitted to OPEC’s 14 member nations meeting in Vienna on Nov. 30. Instead, Iraq and Iran’s insistence on exemptions emerged as a big sticking point, as those members refused to agree to cut their burgeoning output. Producers outside of the organization, including Russia, have also balked at joining the efforts.

“Discussions meant to increase confidence in a deal come Nov. 30 have instead added skepticism,” analysts at Morgan Stanley wrote in a report. “OPEC remains at an impasse.”

Full article ($): No Oil Price Rebound on Horizon

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