The crude oil markets have been a difficult proposition to gauge over the past few months as the commodity has seemingly defied much of our larger forecasts for rebalancing within the markets. It is subsequently clear that a range of variables, including disruptions within Nigeria, and increased demand within the West have led to rebalancing occurring quicker that originally forecast.
In particular, disruptions within the Nigerian supply chain have eased some of the historic oversupply that has been a key component of global oil markets recently. Subsequently, the market has largely moved away from reaching storage saturation and we are now seeing gradual falls to inventories. This largely implies that rebalancing has largely already occurred and that we could subsequently see some upward pressure on oil prices in the second half of 2016.
However, despite the short term gains within crude markets, much of the current supply disruptions are likely to be resolved towards the end of this year and this could subsequently herald a return to inventory builds, and downward price pressures, in early 2017. In particular, the rise of low cost production methods within the US shale oil market will continue to dog global supply and we are likely to see a return to surplus in the medium term. In addition, it would appear that Iran and Iraq are ready and able to return to production growth to grab market share. Subsequently, there still remains a shifting landscape for oil supply.
In light of these market changes, our crude oil price forecast requires some alteration as we now view WTI prices remaining steady around the $45.00 a barrel mark throughout the latter part of 2016. However, our 2017 view remains relatively unchanged with prices hovering around the $54.00 a barrel mark through the first two quarters of the year.
However, there are some near term risks that could be looming for global demand in the vain of a significant slowdown in China. There is currently plenty of scope for a mass of defaults within Chinese Debt markets which could have a flow on effect for demand in other parts of the globe. Subsequently, our current forecast remains predicated on the IMF’s current global growth forecasts. Any subsequent slip to these figures could impact oil demand and subsequently invalidate our forecasting into 2017.
