After a two-year flop, oil prices have soared over $50 this month. However, Raymond James & Associates claims this is only the beginning.
Analysts under J. Marshall Adkins wrote that West Texas Intermediate will average $80 a barrel by the end of 2017. That is greater than all but one of the 31 analysts Bloomberg surveyed.
The team said, “Over the past few months, we’ve gained even more confidence that tightening global oil supply/demand dynamics will support a much higher level of oil prices in 2017,” they also wrote, “We continue to believe that 2017 WTI oil prices will average about $30/barrel higher than current futures strip prices would indicate.”
Three reasons for the team’s estimate were offered in the note and they were all linked to global supply. This remains a major reason in causing crude’s huge drop.
First, the analysts envision foreign production being limited by more than they had originally expected. Roughly 400,000 fewer barrels each day will be produced in 2017 in relation to the team’s January estimate. They mention organic decreases in Angola, China, Columbia, and Mexico as provoking this plunging revision.
Raymond James wrote, “When oil drilling activity collapses, oil supply goes down too! Amazing, huh?”
Adkins and company added that the abnormally large volume of unplanned supply outages might continue through next year. This would take another 300,000 barrels per day away from the global supply.
Finally, U.S. shale producers will be unable to answer to higher prices by increasing output. The team cites a restricted pool of equipment and labor.
Both the supply reduction and stronger global demand tied to gasoline intake add up to the $80 barrel Adkins has predicted.
Adkins wrote, “These newer oil supply/demand estimates are meaningfully more bullish than at the beginning of the year,” he continued, “Our previous forecast was considerably more bullish than current street consensus, and our new forecast is even more so.”
The only analyst with a higher price prediction for next year is Ronald Stoeferle, an Incrementum AG Partner. He guesses that WTI will be at $82 a barrel in 2017. General consensus says that this crude will average to $54 a barrel next year.
Overall, the team at Raymond James sees WTI prices leveling to roughly $70 a barrel.
Article written by HEI contributor Briana Steptoe.