Crude oil prices: Upside bias longer term - Lloyds

Analysts from Lloyds Bank have greater confidence that crude oil prices will rise in the longer term and forecast the WTI barrel to end 2016 at $55.

Key Quotes:

“Fundamentally the crude oil market is probably at one of its most critical junctures since OPEC decided not to address oversupplied market conditions back in November 2014.

“Crude oil prices have now risen by over 80% from their January lows and continued to reach new year-to-date highs over the past month. Brent and WTI touched highs of $52.86/bbl and $51.67/bbl, respectively, in June. Prices at these levels now risk reversing the very factors that have recently helped to bring forward expectations of when balance will be restored to the market.”

“We forecast Brent and WTI to end 2016 at $55/bbl and $54/bbl, respectively. While the short-term risks to our forecast are large, we have greater confidence that prices will move higher in the longer term. Following a 30% reduction in capex levels by global exploration and production companies in 2015, we expect at least another 20% reduction this year or possibly more if prices stay lower for longer. Over the medium term this should help guarantee that the current supply overhang is alleviated.”

“A better longer-term supply/demand balance should start to filter through to global crude prices towards the close of 2017. Hence, we forecast Brent crude oil to average $70/bbl in Q4 2017.”