WTI traded in a bearish pattern once again this week taking out last week’s low print and settling $43.41 on Friday following an IEA report with bearishly adjusted supply/demand expectations, a strong USD which sent the DXY to its highest mark since February and further skepticism that OPEC producers will come to a meaningful supply cutting agreement later this month. Prompt spread markets in WTI and brent also continued to decry high levels of existing supplies falling to fresh contract lows while 2H’17 crude spreads as well as spreads in gasoline, heating oil and gasoil told a much more constructive story. We continue to hold a moderately bullish view of oil at the moment expecting a $47-$55 range based on:
1- Tightening gasoline, gasoil and distillate stocks in ARA, NYH and Singapore which are falling back in line with y/y norms opposite modest demand gains
2- Improved refiner margins back to seasonal norms ($13/bbl for WTI 321, $11/bbl for gasoil/brent) in the US and Europe heading into a ~1m bpd seasonal uptick in US refiner demand
3- Geopolitical risk to barrels from Nigeria, Venezuela and Libya. We continue to view output gains in Nigeria and Libya as climbing a slippery slope as serious threats to exports endure
4- Expected bullish money flows in the low $40s (USO enjoyed its largest w/w inflow last week since February) with managers hesitant to be short oil heading into the Nov. 30 meeting
5- Market sentiment tilting slightly back towards the possibility of an OPEC deal being made as the interests of cartel members align and core members + Russia approach their output capacity
1- Tightening gasoline, gasoil and distillate stocks in ARA, NYH and Singapore which are falling back in line with y/y norms opposite modest demand gains
2- Improved refiner margins back to seasonal norms ($13/bbl for WTI 321, $11/bbl for gasoil/brent) in the US and Europe heading into a ~1m bpd seasonal uptick in US refiner demand
3- Geopolitical risk to barrels from Nigeria, Venezuela and Libya. We continue to view output gains in Nigeria and Libya as climbing a slippery slope as serious threats to exports endure
4- Expected bullish money flows in the low $40s (USO enjoyed its largest w/w inflow last week since February) with managers hesitant to be short oil heading into the Nov. 30 meeting
5- Market sentiment tilting slightly back towards the possibility of an OPEC deal being made as the interests of cartel members align and core members + Russia approach their output capacity
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Goldman Sachs is known to make outlandish calls on crude oil. To be fair, though crude did not actually make it to this catastrophic low, it did come down to $27 a barrel. It was close.
Now, in a recent report, analysts including Damien Courvalin at Goldman have turned “tactically bullish,” forecasting $55 a barrel for the first half of 2017, up from their earlier forecast of a range-bound market between $45 and $50 a barrel for that period.
However, they have not upgraded their annual average of $52.5 a barrel for next year. While the first half’s forecast for 2017 has been upgraded, the forecast for the second half of next year has been downgraded from $55-$60 a barrel to $50 a barrel, as the bank expects OPEC to resume production and U.S. shale oil supply to increase.