HONG KONG (BLOOMBERG) - Oil bulls distressed that last week's rally fizzled can find some comfort in forecasts for a bigger and longer rebound by the end of the year.
Analysts are projecting prices will climb more than US$15 by the end of 2016. New York crude will reach US$46 a barrel during the fourth quarter, while Brent in London will trade at US$48 in the same period, according to the median of estimates from 17 analysts compiled by Bloomberg.
A global surplus that fueled oil's decline to a 12-year low will shift to deficit as US shale output falls, according to Goldman Sachs.
US production will drop by 620,000 barrels a day, or about 7 per cent, from the first quarter to the fourth, according to the Energy Information Administration. Meanwhile, the International Energy Agency forecasts total non-Opec supply will fall by 600,000 barrels a day this year. That may pave the way for a rebound as lower prices have stimulated global demand.
Oil is the "trade of the year," according to Citigroup, which is among banks from UBS to Societe Generale that predict a gain in the second half.
"US shale should take the hit, that's where you will see cuts and supply should start to taper off," Daniel Ang, an investment analyst at Phillip Futures, said by phone from Singapore. "On top of that, there are bullish demand forecasts for the second half."
West Texas Intermediate and Brent both closed at the lowest level since 2003 on Jan 20. New York futures for March delivery closed at US$29.88 a barrel on Tuesday and would need to gain 54 per cent to reach the median estimate of US$46 a barrel. The London contract for April delivery closed at US$32.72 and needs a 47 per cent boost to hit US$48.
The oil price rout will shut sufficient production to erode the global glut and crude will turn into a new bull market before the year is out, analysts including Goldman Sachs' Jeff Currie said in a Jan. 15 report. U.S. production hit a record high of 9.61 million barrels a day in June, according to weekly data from the EIA, and is forecast to average 9.11 million barrels a day in the first three months of the year. It may fall to average 8.49 million barrels a day during the fourth quarter, according to the agency.
"We'll see higher oil prices" with "supply and demand tightening in the second half of the year," Bob Dudley, chief executive officer of BP Plc, said in a Bloomberg Television interview Tuesday. The market will remain "tough and choppy" in the first half as it contends with a surplus of 1 million barrels a day, he said.
A worldwide oversupply contributed to a 30 per cent slump in WTI and 35 per cent decline in Brent last year. US crude supplies have swelled to a record and the Organization of Petroleum Exporting Countries have effectively abandoned output targets as they seek to defend market share.
"We need to see supply giving up and I think that all falls to the US," Dominic Schnider, the head of commodities and Asia-Pacific foreign exchange at UBS's wealth-management unit in Hong Kong, said on Friday in a Bloomberg Television interview.
Mr Schnider at the beginning of this year correctly predicted Brent would drop near US$30 a barrel. "We're still oversupplied."
There are signs supply and demand will start to come back into balance this year, Opec Secretary-General Abdalla El-Badri said on Jan 25 at a conference in London. Global demand is forecast to increase by about 1.3 million barrels a day while supply from outside the producer group is expected to contract by about 660,000 a day, he said.
Iraq, the second-biggest producer in Opec, and Pierre Andurand, the founder of the US$615 million Andurand Capital Management, predict oil may rise to US$50 a barrel, while the United Arab Emirates sees the glut shrinking, even after Iran boosts exports.
"The combination of continued demand growth and falling US production will eventually help create a floor in the market from where it will be able to rally back towards the US$40 to US$50 range by year-end," Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail.