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Oil likely to recover to $55 in 12 months
Oil prices are likely to recover after 11-year low to USD 55 per barrel from the current USD 34 in 12 months, following gains in the latter half of 2016, according to a report.
However, weakness in the price of crude oil is likely to continue in the short-term, with the market yet to see the end of the downside momentum, according to a research report by UBS Wealth Management’s Chief Investment Office (CIO).
The oil market is still oversupplied in the first half of 2016 after supply expanded 2.7 per cent in 2015.
Prevailing market surpluses require accelerated supply curbs to rebalance the oil markets.
Market participants fear that the lifting of restrictions on Iranian oil exports might increase global oversupply even further in the short run.
A quick return of additional Iranian oil barrels would require accelerating supply curbs, including more company defaults, to rebalance the markets, which could keep prices sliding below USD 25/bbl in the short run, the report said.
However, in the longer term, the effects of declining energy investment are slowly becoming more visible.
The CIO expects it to shrink by 0.7 million barrels per day (mbpd) in 2016, with demand expanding by 1.1-1.2 mbpd. This should help cut the current oversupply of 1-1.5 mbpd.
The market could be balanced towards the end of the year, allowing Brent crude oil prices to reach USD 55/bbl at the end of 2016, the report said.
Risks to our expected price recovery come from a sharp increase in OPEC supply and/or weaker oil demand from emerging Asia, which would push the market’s rebalancing into 2017.
“Low Brent crude prices remain an immediate challenge for oil exporting nations in Middle East and North Africa, and in particular for government budgets.
“The price recovery that we see in the second half of 2016 should support the region in the near term, but economic reforms will still likely have to be implemented as oil prices are unlikely to move back to triple digit levels anytime soon,” said Simon Smiles, Chief Investment Officer for Ultra High Net Worth at UBS Wealth Management.
According to the Chief Investment Office, high-grade Gulf sovereigns like Qatar, Abu Dhabi and Kuwait should be more resilient to oil shocks than many other emerging market energy exporters.
Their high production means they needed lower oil prices to balance their budget and has enabled them to accumulate ample foreign exchange assets.
By contrast, Saudi Arabia, Nigeria, and some other emerging market oil exporters in Africa, Latin America and the Middle East have lower fiscal buffers and require much higher prices to balance their budgets.
http://economictimes.indiatimes.com/articleshow/51253881.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
54 Comments on "Oil likely to recover to $55 in 12 months"
JuanP on Sun, 6th Mar 2016 8:01 am
Beep! Beep!
Northwest Resident on Sun, 6th Mar 2016 10:12 am
Davy — Don’t worry. China is promising to return to at least 6.5% annual growth, to reduce their misallocation and overcapacity, and to return the world to a new age of debt-fueled growth. Just look at the stock market increases last week. Surely, all is well!
Or, on a less sarcastic and more speculative note, could it be that TPTB are closing in on the perfection of fusion generated power and a new age of economic growth for fucking ever! If only they can extend and pretend a little while longer to keep the needed infrastructure intact until they get that fusion generator cranked up. Okay, that was only a little less sarcastic.
Do you get the feeling that it is all close to coming down hard? I do.
twocats on Sun, 6th Mar 2016 11:24 am
I have been following this topic of peak oil intimately since 2000. For me back then it was more about collapse in general. I was already living on a farm thinking about resilience, sustainability, and collapse. As time went on around 2005 with Kunstlers “Long Emergency” and Heinberg’s “Peak Everything” along with several other books I became energized about Peak Oil. The internet was developing then with blogs as a way to bypass the mainstream media’s corrupted narrative.
Back then I was too focused on Peak Oil and energy in general. Around five years ago I started to read Korowicz and his combining of systems analysis to global problems and predicaments. Besides the environment, which gives us the chance for life at all, energy and the economy have to be the focus. Oil has to be the central focus with the energy complex and the financial system with the greater global economy. Globalism operates because of both symbiotically and produces our food and shelter.
We are all dependent on globalism through delocalized locals. Delocalized locals is another concept for complex interdependence of multiple locals on the majority support of a greater global support system. Our current arrangement is total dependence on an earth size system. Our societal drive for efficiency and greater prosperity has been at the expense of resilience and sustainability of all locals with ever expanding complex systems of support.
We are now to the point where a global economic system and energy supported global industrial consumption is required for survival. The word required is important here. There are no alternatives to safe and comfortable survival anymore anywhere. This energy supported industrial life support has now hit limits and diminishing returns at every resource and network level. Every local is part of these limits either through overconsumption per sustainability and or overpopulation.
There are locals that are more sustainable with less consumption and population issues but still exposed to a global collapse through forced population migrations from those that are not sustainable and resilient. The dangers of global industrial accidents both locally and with multiple global impacts are a danger to all. There is really nowhere to hide and no one is safe.
Oil is central to these dangers because of Peak oil dynamics. Depletion is now a problem. The financial system is the other central danger. It is the global financial system that allows a global economy. It is the confidence and the liquidity from that confidence that allows multiple dispersed locals to trade and exchange. It is that financial system now that is the most immediate danger because of destabilization of fundamentals that allow it to function. This destabilized financial system is now disrupting oil as a segment of the economy which is symbiotically affecting the economy.
Oil depletion is affecting our industrial society and is the root cause but not the immediate danger. The immediate danger is now a vicious cycle of economic demand and supply destruction. Currently the oil supply appears fine but it is the oil supply potential and the economy’s ability to afford oil that is now in a vicious cycle of destruction.
Our economy likewise appears stable with only traditional business cycle issues but the reality is we no longer can afford growth. We have across the board malinvestment from the abstract of networks to the physical industrial machinery of global man. We have people making and consuming the wrong things in relation to what allows longer term survival. Too many people are a central part of this but it is also how we live. The products we consume and the damage they do to our all-important environment. This is all combining and converging in predicaments and problems that are catch 22 traps. We are trapped in the end of a lifecycle as a species in its species ecosystem and the disruption of the greater earth ecosystem. This is a powerful global combination and ensures collapse because both our species ecosystem and the greater earth ecosystem are now in dangerous decay.
So in reality it has now become all of the above in regards to collapse potential. Everything is wrong with us now. Oil and the economy are central to this but in reality it is everything from the physical to the abstract. We do not live as we should for sustainability and survival. These poor social traits both physical and abstract are now systematically and structurally unmovable to reform. The greater ecosystem that allows civilization has been disrupted beyond stable and is now in dangerous runaway change.
Change here on out will be destructive with unknown consequences. The time frame is unknown because of the multiple different scenarios that could break systematically. Where this happens first is unknown for the same reasons. What is certain is we will all collapse together eventually in some process of time and place in a particular scenario of degree and duration. It is our fate per natural law and it is necessary by the balance the global ecosystem maintains over and above the human ecosystem. [Davy]
twocats on Sun, 6th Mar 2016 11:28 am
I feel like you’ve outlined a lot of the key issues there Davy, and it sounds like you agree that although the Peak Oil Dynamic is obviously a Core Gear to the Machine of the World, that right now its the “vicious economic demand and supply destruction” that is in control.
The maxed out aspect you describe is a theme we hear a lot of about on this board, and its not just oil and population, as you say, its every natural system. I’m reminded of Rockstrom and Klum’s “Big World, Small Planet”. I don’t know the exact time period it switched, but not too many decades ago it was a Small World on a Big Planet.
The malinvestment theme is yet another issue. Did peak oil really make China build all those ghost cities? Kunstler likes to talk about the suburbs being the biggest malinvestment of human history, but at least people got to live there, and some enjoyed it. The ghost cities are possibly the stupidest things on Earth.
I see it in our movies and literature as well – humans are just out of ideas. Maybe if we could have achieved the levels of technology we see in our science fiction works it might have re-energized the human population. But for most of the planet it’s back to the quiet joys of family, clean water, good food (if we are lucky). We’ve raised a couple billion “pioneers” and “creatives” with no where to apply their trade.