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Page added on January 7, 2016
Why Oil Prices Will Rebound in 2016
The plummeting prices of oil and gas roiled markets and affected businesses, investors and drivers in 2015. Whether prices rebound or not is bound to have a similar impact this year. Prices shot up briefly on Monday as investors worried about a potential supply disruption as a result of heightened tensions between oil producers Saudi Arabia and Iran, but weak economic data from China erased the gains.
So which direction will prices go from here? Will concerns about demand from China and other weakened economies combine with an ongoing supply glut to further drive down crude futures?
Phil Flynn, senior energy analyst at The PRICE Futures Group, lays out a bullish case — and it doesn’t just rest on crisis in the Middle East.
His argument that prices will rise after two down years starts with reasons that the global oil glut might be curtailed. For one thing, producers are pulling back in response to lower prices. “The Wall Street Journal is reporting that Tudor, Pickering & Holt, an energy-focused investment bank, has tallied 150 projects that have been delayed, resulting in an estimated 13 million barrels a day of oil production deferred indefinitely,” Flynn wrote to clients on Thursday, noting that the crude that isn’t flowing represents 15 percent of total global output.
“Capital spending cuts as well as the normal rate of production decline is hitting the market,” the analyst says.
And the added supply expected from Iran might not materialize, he adds. The U.S. is now considering imposing more sanctions on Iran, which could spell trouble for the return of Iran’s oil to the market — though tensions with Saudi Arabia could also mean that the two countries won’t work in concert to limit production.
Flynn argues that, when Iran does eventually re-enter the market, there will be questions as to how much oil it can produce consistently given a lack of investment in its oil fields. On top of that, he doesn’t believe that Saudi Arabia is going to produce much more oil next year than it has this year. “They say they’ll add more, but how much more can they? How much more could they add?” Flynn says.
Also, production from other OPEC countries might fall. Producers in Venezuela, Mexico, Algeria and Nigeria are postponing projects that are necessary to reverse the natural depletion of oil fields and even though production is improving in Libya, Flynn questions how sustainable it is due to the volatile political situation there.
On the other side of the supply/demand equation, the consumption of gasoline in the U.S. is rising sharply. Demand for gas grew at the highest rate in 30 years, Flynn says, while global demand growth was the strongest in over a decade.
“We’ve priced in weaker demand than we think [exists],” Flynn says.
Flynn predicts that next year will see an even greater jump in demand and it’ll become the driving force that pushes gas prices up from their current average of $2 a gallon to around $2.25 by April.
Flynn likens the current situation to the last time oil had back-to-back losing years, which was in 1997 and 1998, when prices fell over 30 percent. The following year saw a colossal rebound as oil prices more than doubled. “History could repeat itself,” Flynn says, as “crude oil is getting ready to party like its 1999.”
19 Comments on "Why Oil Prices Will Rebound in 2016"
twocats on Thu, 7th Jan 2016 3:35 pm
Flynn says, as “crude oil is getting ready to party like its 1999.”
But the Middle East remains a Brick House, letting it all hang out, and the slowing growth is hitting china like a Purple Rain. Boy, finance is fun!!
Apneaman on Thu, 7th Jan 2016 3:59 pm
Oil down again to 12-year low; $30 handle looks more likely
http://www.theglobeandmail.com/report-on-business/oil-slides-below-33-as-china-turmoil-rattles-investors/article28047071/
Davy on Thu, 7th Jan 2016 4:41 pm
Too many people alive today have not been through a real recession. The 08 crisis was an event that had the potential of a collapse but turned out to be an opportunity for an economic party for the rich. My point is many who look at business and the economy today have known little but a market in a relentless climb with a few hiccups.
This type of habituated orientation creates a block. We have people with mental and emotional blocking mechanisms that prevent an acknowledgement of an end point. This end is the absolute end of growth. This is a pole shift. We are not there yet. We have also been in a recession at many sub levels but this is opaque. I am referring to people who will not acknowledge we may have entered a new paradigm of non growth.
This seems like a simple concept to get ones mind around but it really isn’t. On the surface a paradigm change like this is binary but dig deeper and it is nonlinear with random destructive decay. This current period appears increasingly to be more than a normal downturn in the relentless upward trend of growth. This period we are in is different. Demand structures are being destroyed that can not be rebuilt. Momentum is being lost that will never be regained.
When we look at price we are again in a false reality to the physical. Emotions and the irrational are playing a role in prices. Oil prices may go up but the physical trend of the economy and oil supply is down. When I talk about oil supply going down I am referring to the supply potential that must be maintained to maintain growth that maintains supply growth. We are seeing now only a rate of growth decline in the physical economy and oil supply but this is all it takes just as a butterfly can influence a storm.
A massive effect will come with actual decline. This will be psychological as well as physically disruptive. We are now in the surreal of a growth based mentality entering a descent period. We are going to see plenty of the status quo diverging from actual reality. The dysfunction will magnify in a nonlinear fashion as this divergence intensifies.
Davy on Thu, 7th Jan 2016 5:59 pm
Further support to my above comment that this time is different:
http://www.zerohedge.com/news/2016-01-07/bob-janjuah-warns-bubble-implosion-cant-be-fixed-time
makati1 on Thu, 7th Jan 2016 5:59 pm
Financial pimp rag, not facts. Just hopeful guesses. The game is heating up.
shortonoil on Thu, 7th Jan 2016 6:53 pm
Petroleum affects the economy; it is doubtful that there would be much economy at all without it:
http://www.thehillsgroup.org/depletion2_022.htm
Every dollar spent by the petroleum industry creates about $2.25 more in the general economy. It’s ability to drive the economy has declined by about 41% since 1970. Since January 2014 the industry’s annual revenue has fallen by $2.3 trillion. That is $2.3 trillion less it is spending into the economy every year. $2.3 trillion X 2.25 = $5.2 trillion; or an economic slow down of 7.1%.
With a serious recession about to appear in the economy, and it already has is if indicators like the BDI, and general commodity prices are taken into consideration, its seems very unlikely that there will be much increase in the price of oil during 2016.
This articles appears to read more like a wish upon a star, or a letter to Santa than an actual look at the data available.
http://www.thehillsgroup.org/
shortonoil on Thu, 7th Jan 2016 6:59 pm
Sorry, wrong link?
http://www.thehillsgroup.org/depletion2_012.htm
Apneaman on Thu, 7th Jan 2016 11:12 pm
Canadian crude — the world’s cheapest oil — falls to record low as slump deepens
http://business.financialpost.com/news/energy/canadian-crude-the-worlds-cheapest-oil-falls-to-record-low-as-slump-deepens
Apneaman on Thu, 7th Jan 2016 11:13 pm
Oil lurches closer to $20 Goldman Sachs doomsday forecast: ‘The supports are crumbling’
http://business.financialpost.com/news/energy/oil-lurches-closer-to-20-goldman-sachs-doomsday-forecast-the-supports-are-crumbling
twocats on Thu, 7th Jan 2016 11:36 pm
“the markets can stay rational a lot longer than these guys can hold back from committing suicide”
Davy on Fri, 8th Jan 2016 6:39 am
More quiet today but “Reality sucks for the Chinese”
http://www.zerohedge.com/news/2016-01-08/chinese-market-bailout-fizzles-us-futures-fade-overnight-gains-german-dax-slides-bac
“And so China is back to square one between lying about its non-intervention, and lying about its stable economy: “while the intervention may reduce selling pressure, it clashes with authorities’ pledge to give markets more sway in the world’s second-largest economy.” Sorry China, you can’t have both; the problem for Beijing is that by now everyone knows that if true price discovery is allowed, the Chinese market will implode, thus putting the country in a no way out position.”
JuanP on Fri, 8th Jan 2016 7:30 am
China halts stock trading again, https://www.rt.com/business/328205-china-halts-stocks-markets/
shortonoil on Fri, 8th Jan 2016 9:09 am
“Phil Flynn, senior energy analyst at The PRICE Futures Group, lays out a bullish case — and it doesn’t just rest on crisis in the Middle East.”
Another analyst with a long convoluted assortment of maybes. If Saudi Arabia does this, and Iran does that then maybe this will happen; if Venezuela, Mexico, Algeria and Nigeria don’t do something else. By throwing in some debt, worker wages and capital spending maybes, we get a very clear, and concise maybe!
There is another explanation that is not quit so reliant on maybes. Petroleum can no longer supply enough energy to drive an integrated global production system. Maybe, the situation is not as complicated as some people are trying to make it out to be?
http://www.thehillsgroup.org/
Revi on Fri, 8th Jan 2016 1:10 pm
The age of oil is winding down, but nobody seems to know it. The US sold a record amount of cars last year, aided by the equivalent of the housing bubble, but this time in cars. People were offered such incentives that they ended up buying a new car because they were offered such easy terms.
Bob Owens on Fri, 8th Jan 2016 1:49 pm
We should all know by now that the future price of oil cannot be predicted. Not even a week in advance.
shortonoil on Fri, 8th Jan 2016 3:29 pm
“We should all know by now that the future price of oil cannot be predicted. Not even a week in advance.”
http://www.thehillsgroup.org/depletion2_022.htm
Apparently some we’s know more about it than others!
Apneaman on Fri, 8th Jan 2016 4:32 pm
Revi, if an irrefutable case was laid out for them that it was going to happen within a decade, do you think they would have done otherwise? I don’t. A new car is an instant dopamine releasing status bump – and it’s shiny. Do you have any friends that seem compelled to tell you about or show you everything they buy over $50? I alway have. I just love when they buy a new house and give you “the tour”. Oh, so that’s what a bedroom closet looks like. That’s nice. Status seeking apes is what we are. That’s what all the economic addictions and suicides recently are all about – loss of status. A living hell for many.
bug on Fri, 8th Jan 2016 5:41 pm
A living hell for many who bought into the entire “I can buy it,why not, the payments are only xyz”. Those of us that live more frugally say ” really, that’s nice” and keep moving along.
makati1 on Fri, 8th Jan 2016 7:02 pm
Ownership is a disease common in America today. Problem is, few actually own what they have. The bank does. Even when the last payment is paid and the mortgage is burned, the government can still take it away if you don’t pay your taxes on it.
A car depreciates the minute it leaves the lot and will be worthless by the time of the last seven year payment, or cost as much in repairs, insurance and licensee fees as a new one.
All the other junk is either worthless or will be in a matter of years.
Few things can actually be owned and used for your lifetime. Education is one. Good health habits is another. Skills and experience are yours until you die.
What are you ‘investing’ in?