Americas News
Crude Could Drop to $32 by December With Substantial Upside Only After 2019: Analysts
Although predictions of crude's future are about as reliable as weather forecasts, the general consensus is that oil is stuck in the $40-$60 range due to U.S. shale; however, two experts on Monday offered a far more volatile forecast for prices next year and beyond.
Peter Lee, oil and gas analyst for BMI Research, began on a positive note by telling CNBC that his firm is bullish going into next year, "and that's because we believe a lot of the production gains made in the U.S., Libya, and Nigeria, that pressure prices in each one have been exhausted.
"We think the demand side of the fundamentals looks pretty good also: crude inventories in the U.S. dropped for eight consecutive weeks, gasoline inventory as a whole also dropped, and we're quite positive of emerging demand trends in Asia as well as parts of the Middle East, so that should be supportive of prices."
But when asked if demand is enough to offset the supply side, Lee replied, "We're actually seeing limited price gains for 2017 and 2018; we think there's plenty of supply additions to come from regions like the U.S. and Brazil in 2018; and we think the cut Organization of the Petroleum Exporting Countries [OPEC] barrels will gradually make the return to the markets from Q2 2018, limiting price gains over this period.
"However, beyond 2019, we see a thinning project pipeline, which will contribute to a more pronounced fall in supplies."
James Cordier, founder and president of Optionsellers.Com, was far more pessimistic about crude's near-term future than Lee; he told Bloomberg that he sees oil dropping to $32 per barrel by December due to the lower demand seasons; plus, "a lot of people are talking about a balanced market because of the OPEC cuts, but we really don't think it is balanced," he said.
Cordier added, "we think Nigeria, Libya, and what's happening in Texas of course with the great expansion of crude oil production is going to probably equal a lot of the production cuts out of OPEC.......we think as we go into the shoulder season...we're probably going to have extra barrels and we think oil is probably going to race away from this $50 level quite a bit to the downside."
An interesting but not entirely contrary forecast for crude was provided earlier this month by Citi, which predicted the commodity would trade between $40 to $55 between 2018 and 2020 and then $50 to $60 through 2022.
Citi also rejected the argument that a lack of new projects will render the market under supplied; instead, it thinks U.S. shale and an improved outlook for projects in Mexico, Guyana, Brazil, and Canada will sustain the market and cap prices at $60 through 2022.
