With crude prices comfortably below $40, the oil price outlook for 2016 is not as bright as market watchers may have hoped.
2014 came to an end with analysts warning that 2015 would possibly only provide slight relief to depressed oil prices. Brent crude ended 2014 with a fall to $US62 per barrel, whereas West Texas Intermediate (WTI) oil prices fell to about $59 per barrel for the same period.
Without much to go on, oil prices had an uphill battle provide any relief to the market. Though both Brent and WTI managed to float above $US60 for some of 2015, ultimately, oil prices started to fall quite drastically by July.
Brent crude prices are currently sitting at $37.55 per barrel, while WTI prices are similarly sitting at $37.76 per barrel.
What impacted oil prices in 2015?
Looking back over 2015, the Motley Fool noted that there were four major factors that impacted the price of oil.
First, many US oil producers have proved to be much more resilient than was previously expected. Overall, many producers exceeded their production guidances for the year. Indeed, as the US Energy Information Administration (EIA) noted in its early December Short-Term Energy Outlook, domestically, Brent crude prices decreased in November as “global oil supply continued to outpace demand.”
The second item on the Fool’s list – and one that also added to the issue of global oversupply in the oil market – was OPEC. The organization did not keep its production levels at its stated quota. No, instead, the oil cartel exceeded its quota then raised the quota accordingly.
As a result of growing production, the market has started to become concerned with overcapacity at storage hubs. As noted by the EIA, WTI prices have shown weakness as “crude oil inventories at the Cushing, Oklahoma storage hub increase in November despite rising refinery inputs of crude oil following seasonal maintenance.”
Finally, the last item on the Fool’s list of factors weighing down oil prices was the nuclear agreement in Iran, which the publication stated “has the potential to unleash upwards of 1.5 million barrels per day of new production in the near future.”
What is the oil price outlook for 2016?
For 2016 the price forecast for crude oil “remains subject to significant uncertainties as the oil market moves towards balance,” the EIA noted, adding that during this period, “oil prices could continue to experience periods of heightened volatility.
In fact, just as the Fool outlined four major factors impacting the 2015 prices, the EIA pointed to those same factors as having a significant role to play in the coming year.
“The oil market faces many uncertainties heading into 2016, including the pace and volume at which Iranian oil reenters the market, the strength of oil consumption growth, and the responsiveness of non-OPEC production to low oil prices.”
When it comes to the future of oil prices, however, Daniel Ang, analyst with Phillip Futures said it best. “Prices over the next two weeks will not be indicative of the longer term trend for 2016,” he stated. “Volumes will remain low due to the holiday season,”
Still, the Australian reported that while on the whole 2016 does not look to be bringing much more than a bear market, “analysts say oil demand could find some support if the US economy continues to recover and if China’s economy stabilises on the back of a slew of government’s measures to stem an economic downturn.”
Echoing the Australian, Oilprice.com also alluded to market watchers expecting a late 2016 turnaround.
“We view the oversupply as continuing well into next year before rebalancing in the fourth quarter 2016,” Goldman Sachs said in recent report. “Our base case remains that the global oil stock build will on aggregate remain shy of storage capacity, although the storage buffer has once again narrowed.”
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.
Oil Outlook 2015: Rising Demand and Heavy Production to Compete