Oil will soon stage a ‘fundamental price recovery’: Analyst
Supply outages and growing demand from China mean crude prices will come into “much better balance” in the next few months, an energy analyst told CNBC.
Jefferies’ Jason Gammel told CNBC on Monday the oil market had swung from oversupply to undersupply in April thanks to disruptions in production in Nigeria and Alberta, Canada, taking around 2 million barrels per day out of the market.
“I think with continued demand growth over the course of this year and continued declines in non-OPEC supply that we are already seeing in places like the United States, the market actually comes into much better balance by the end of the third quarter and that’s the stage for fundamental price recovery,” he told CNBC television in London.
As global crude output fell, demand from China — a massive consumer of energy — rose in April. Its crude imports reached 8 million barrels a day, up 7.6 percent from a year earlier, according to official Chinese data cited by Reuters on Monday.
“In the case of China, what is encouraging is that their imports are still very high, because I really think that, from a supply-and-demand standpoint, you need to have strong Chinese demand growth in order for the market to become more balanced by the end of the year,” Gammel said.
According to a UBS commodity strategists’ forecast published Monday, Brent crude will trade at around $49 per barrel in the fourth quarter of 2016 and then rally further to average $55 through 2017.
They added that a recovery in WTI oil prices to above $50 per barrel would incentivize renewed U.S. energy exploration and this projected increase in supply would limit price upside.
Light crude futures for July traded at around $47.80 on Monday.
Gammel agreed $50-plus prices would spur U.S. rigs back online, but said this increase would be insufficient to offset lower output from shale gas wells.
“I think if the U.S. rig count doesn’t go above, let’s say, 500, that the U.S. production is going to continue to decline,” he concluded.
Oil exploration in the U.S. is down 51. 7 percent, year-on-year, Baker Hughes reported last week in its widely eyed weekly report on North American drilling activity.
The U.S. rotary rig count last week was down two at 404, Baker Hughes reported. That was 481 rigs down on last year and the lowest since Baker Hughes started counting rigs in 1949.