Any chances for continued oil price growth?
The price of oil has lifted from its recent low below $45/barrel for West Texas Intermediate (WTI) oil in mid-January to about $53/barrel now, up 18%. Within the past 30 days, the price has been largely flat, frequently running up and then down again, but in the past several days, the WTI oil price has risen by more than 10% (before it went down to about $51/barrel on Tuesday).
Behind this rise are lowering expectations for global oil production growth, a result of the current lower oil prices. According to Bloomberg, non-OPEC growth of oil supply is currently forecast to be 850,000 barrels a day, down by 420,000 barrels/day from the previous forecast. The sharp drop in the number of rigs drilling for oil in the U.S. and the announcements from major oil companies that they are cutting back on investment have also helped stimulate oil prices higher.
That said, global oil production continues to grow. It will likely continue to rise over the next several months despite the decline in the number of new oil wells being drilled as those new wells take time to be completed. According to oilbarrel.com, Citigroup assumes that the price of WTI could drop to as low as US$20 a barrel in the short term because shale production in the US is still on the rise, and Russia and Brazil are continuing to produce oil at record levels. Citibank expects an average Brent price for 2015 at around US$54 a barrel, and for 2016 at US$69 a barrel.
An indicator of the strength of oil prices, the Canadian dollar (CAD) remains subdued. Despite the recent oil price gains, CAD has been fluctuating around the US 80 cent level over the past couple weeks. If oil price prospects were to brighten materially, expect to see a strengthening CAD, potentially above US 85 cents, where it was in 2014.
By: Ukrainian Credit Union Limited
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