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$50 Oil As Soon As May?

$50 Oil As Soon As May?

After staging a 50 percent rally between February and March, oil prices have bounced around, moving up or down on a given day depending on the news cycle.

The persistent glut and rising storage levels weigh on crude prices, but falling production levels provide some reason for optimism. On March 29, Federal Reserve Chair Janet Yellen struck a dovish note on interest rates, buoying stock markets around the world and sparking a rally in oil prices.

Most market analysts expect the crude oil markets to come into balance in 2016, with an eye on the second half of the year. One of the big unknowns is the pace of global oil demand growth. The slowing economy in China, in particular, has contributed to a much longer slump in prices than the markets anticipated. Related: Oil Prices Beyond WTI And Brent

But Credit Suisse says that market analysts and oil traders are too gloomy. Global demand growth dropped to a 1.2 percent annual growth rate in the fourth quarter of 2015, down from 2 percent earlier in the year. That fueled worries of a worldwide economic slowdown, particularly in January and February of this year. Credit Suisse sees that as a fleeting phenomenon rather than a sign of an extended slowdown.

The bank is predicting oil prices hit $50 per barrel as soon as May on the back of rising demand. "Oil demand growth is alive and well," Jan Stuart, an economist with Credit Suisse Group AG Global Energy, wrote in a recent report. "We think that with hindsight this winter will look like a dip in an otherwise still unfolding fairly strong growth trend that is partly fueled by the ongoing economic recovery of in North America and Europe and longer standing trends across key emerging market economies." Related: Low Oil Prices Forcing Saudi Arabia To Modernize Economy

Credit Suisse points to a pickup in demand in February in the U.S., Brazil, India, South Korea, and China. As a result, we could see $50 oil within a month or two.

The forecast stands in stark contrast to some other analysts. Barclays, for example, sees the potential for oil prices to fall back to the low-$30s in the short run as speculators start to retreat from their recent buildup in bullish positions.

By Charles Kennedy of Oilprice.com

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  • alfa on March 30 2016 said:
    Well, I think forecasts based on extrapolating supply and estimating demand don't work in the oil market.
    Saudi Arabia can just simply open their valves and all extrapolation is screwed up.
    Break-even of shale oil is ~$45, that of oil sands is ~$40.
    Saudis have the motive and the ability to prevent the price from reaching $50 to drive out the unconventional producers (if that's what they really want).
    If that's the case, $40 is likely to be maintained in the next 2 years.
  • Stephen Real on March 31 2016 said:
    US and World supplies are still building up month after month. Oil at $50 is what everybody is talking about...except USA and world supply still appears a bit glutted. Well see...maybe this summer
  • Ness on March 31 2016 said:
    The longer oil stays at $40. The higher it will be in 2019 thru 2025.
    lots of money needs to be spent in the free market and the not so free markets to keep up with natural decline and there is no money available. (This includes Saudia Arabia) If oil stays at $40 average this year means further investment cuts next year, won't take long before we are talking about a 2 million barrel deficit per day
    Energy consuming industries would be wise to start locking in 2018 and fwd oil and natural gas contracts today if they aren't already

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