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Oil price may rebound 50% in 2016

February 3
3:15 AM 2016

Oil bulls now take a sigh of relief following the latest forecast of 50 percent rebound in prices by the end of 2016. The oil price may escalate $15 per barrel this year. The New York crude prices may reach $46 a barrel by fourth quarter and Brent to $48 during the same period. The decline in US shale production is expected to push oil price up in the second half of 2016.

The fading out of last week's rally in oil prices discouraged bulls and several oil exporting countries. The oversupply in oil hammered down the prices to 12-year low. Now, the situation is reversing as the US shale production is declining. Energy Information Administration (EIA) forecasts that US production will drop by 620,000 barrels per day or seven percent from the first quarter to fourth quarter of 2016. 

According to a median of 17 forecasts compiled by Bloomberg, the crude prices in New York could bounce 50 percent to reach $46 a barrel. The Brent in London is also poised to reach $48 a barrel during the same period. International Energy Agency (IEA) predicts that total non-OPEC production will drop by 600,000 barrels per day this year. This will push up oil prices up. 

Many US banks are anticipating rebound in oil prices. 'Oil is the trade of the year,' according to Citigroup Inc, which is along with UBS Group AG and Societe Generale SA in favor of oil price recovery in the second half. 

Daniel Ang, an investment analyst at Phillip Futures, said: "US shale should take the hit, that's where you will see cuts and supply should start to taper off. On top of that, there are bullish demand forecasts for the second half."

Energy analysts hold view that oil prices are already bottomed out and will rebound in next few months. However, traders see opportunities to short stocks of shale companies. Shale stocks suffered the most since mid-2014. Shale stocks will rebound as they were sold heavily during the recent past, as per a report published by Seeking Alpha.

West Texas Intermediate (WTI) and Brent on 20 January 2016 reached the lowest since 2003. WTI for March delivery was at $29.88 a barrel on Tuesday and it requires 54 percent rebound to match the median estimate of $46 a barrel. The London contract for April delivery was at $32.72 per barrel and requires 47 percent jump to match forecast of $48 per barrel. 

Meanwhile, after witnessing a four-day rally, US crude futures fell six percent on Monday as Chinese data disappointed the markets, as published by CNBC. The manufacturing sector of the world's second largest economy contracted in January 2016 registering lowest pace of growth since 2012.

WTI and Brent oil prices rose 4.4 percent and eight percent respectively during the last week. There's speculation making rounds in the market that Russia and OPEC will discuss on production cut. The oil production cuts will help ease out the global glut thus helping the oil market enter into bull phase again. 

The US production reached a record high of 9.61 million barrels a day in June 2015, according to EIA. Now, this production will come down to 9.11 million barrels a day during the first quarter of 2016. The drop in oil production is expected to be 8.49 million barrels a day by fourth quarter, as EIA predicts. 

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