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Crude Oil Price and the 50 USD Benchmark for 2016

Most reputable financial organizations predicted a low price of crude for 2016.The World Bank in its January 2016 commodity forecast reported that the average spot price for crude will fall to 37USD/bbl.
Crude oil price is an important metric in economic forecasts of countries.Consequently, estimates for the price per barrel of crude by leading financial investors is monitored closely by governments.Higher prices of crude favor the Petroleum exporters while countries dependent on petroleum imports suffer huge import bills.

In the last few years, unforeseen variables have played a major role indetermining the price of crude.For instance the lifting of the US Oil Exporting Ban after so many decades in 2015 was not even taken into consideration by OPEC in its production forecast.
Currently,OPEC controls over 35% of World Energy Exports.In a bid to fortify its market dominance, the cartel has refused to cut down production despite calls by its member states.
By overproducing, the cartel(mainly Saudi Arabia) intentionally drives down the price of oil in an effort to put the US Shale Oil Competition out of business.

Shale reservoirs have a higher production cost than conventional oil reservoirs.The most efficient US shale producers are profitable at a minimum production cost of about 35 usd/barrel of crude. Besides,shale reservoirs are notorious for a high rate of decline.
As at January 2016, world supply of crude oil was in excess of about 2 million barrels, thanks to OPEC.However, disruptions in key producer countries like Nigeria have resulted in a more balanced global supply in an over-saturated market.Already, Nigeria’s production capacity is down by over a million barrels due to the vandalisation of oil pipelines by militants clamouring for resource control.

So far, the crude oil market has rebounded from a low of 25 USD per barrel in mid January to over 40 usd April.By the end of May, it had reached the 50 usd mark and settled to over 45 usd in June.
During the period of low oil price (2014 – 2016), the number of rigs operating in the US has fallen significantly.Currently, US oil rig count is low but  a rise in crude prices above 50 USD can ramp up shale oil production.

However,there is no guarantee that OPEC will change its disposition towards low oil prices. A proposed production freeze in Mid April by OPEC failed to materialize.
It is very unlikely that the price of crude will exceed the 50 usd mark.Our analysts expect oil prices to remain between 42- 47 over the course of 2016.

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