EMEA News
Merrill Lynch: Get Set For $70 Crude Rally Next Year
Calculating that demand will outstrip supply by 800,000 barrels per day next year, Bank of America Merrill Lynch predicts that crude prices may rise to as high as $70 during the peak 2017 summer driving season.
Francisco Blanch, head of global commodities and derivatives research for the bank, told CNBC's Squawk Box that 2017's demand/supply rebalance will be driven to a significant degree by deep capital spending cuts biting into production.
Blanch also cited healthy car sales in emerging nations as well as the Federal Reserve likely raising interest rates only gradually as other contributing factors: "That's why we think the natural rebalancing mechanism of the market is going to continue throughout the next five or six quarters, so stronger demand and stagnating supply leads to higher price.
"We see a pretty robust demand expansion into next year as long as monetary policy remains accommodative."
Both he and Matt Smith, director of commodity research at ClipperData, dismissed the upcoming Organization of the Petroleum Exporting Countries (OPEC) freeze meeting in Algeria as irrelevant, with the former going so far as to call the cartel essentially finished, given the competing interests among its members.
But Smith is more cautious than his colleague in that he believes when oil hits $50 next year it will prompt U.S. shale producers to increase activity, which in turn will cause traders to worry about more product being dumped onto a market that struggled for two years to rid itself of oversupply.
Another conservative voice is that of Wim Thomas, chief energy advisor for Shell, who told Reuters that the rebalance may not happen until the second half of 2017 due to increased activity from Libya and Nigeria; he also stressed that demand from energy hungry nations China and India will be a key driver for oil prices.
However, he added that Shell was prepared for any outcome given that - best predictions aside - a rebalance "can happen any time between the second half of this year and the second half of next year."
Vaqar Zuberi, portfolio manager & senior analyst with Mirabaud Asset Management, could be said to be in line with the majority of analysts who recently predicted oil volatility leading up to the OPEC talks and then a market rebalance afterward; only in Zuberi's case, he made that prediction earlier this year in reference to the Doha talks, and with regards to a rebalance for the second half of this year - which obviously did not pan out.
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